The headlines have been coming thick and fast from the royal commission into financial services over the last few months and justifiably so. Recently the commission has been investigating insurance and some of the reported activities conducted by these companies are shocking:
- AMP charged more than 4600 dead people for life insurance
- AAMI tried to cash settle rebuilding of houses for significantly less than the real cost.
- Allianz sold 2 million travel insurance policies using deceptive & misleading statements
- Insurers sold over 200,000 add on insurance policies through motor dealers offering the dealers up to 50% commission for insurance that offered very little actual insurance cover.
It has become very clear that big banks and insurance companies have some serious cultural problems. In nearly all of the cases in front of the royal commission the culprits have been large insurers (many owned by banks) dealing directly with the public, insurance brokers have not been implicated in any of these complaints. What is particularly sickening for me is that the banks are quickly selling off their insurance businesses now that they know that their bad business practices will no longer be tolerated.
The reports from the Royal Commission mirror the annual reporting from the Financial Ombudsman Service which handles complaints against insurance companies and the financial services industry. In 2016/17 there were 8,756 disputes with general insurance businesses of these only 216 were with insurance brokers. A whopping 8540 disputes were made against general insurance companies dealing directly with the public.
Insurance brokers are legally required to act in the best interests of their clients not the insurance companies. This means that insurance brokers are held accountable for the advice they give and will be held responsible if their advice is flawed. When purchasing insurance directly from an insurer there is no obligation for the insurer to make sure the insurance is suitable for your situation. That is entirely your responsibility. This allows the insurers to get away with many of the shonky practices that are now in front of the royal commission.
The culture in these large organisations clearly needs to change, something is not working and hopefully the Royal Commission can get to the crux of the problem. Insurance brokers are already legally required to act on their client’s best interests not that of the insurers so one of the outcomes of the royal commission may be that more people do seek insurance advice from a trusted adviser.