Home Wealth Insurance TAL redundancies a ‘seismic shift’ in life insurance

TAL redundancies a ‘seismic shift’ in life insurance

The sacking of 50 insurance salespeople could have broad implications.

Jack Derwin

Digital Journalist, Your Money

The life insurance market is undergoing change (iStock.com/thodonal)

An insurance executive has labelled TAL’s decision to wind back its direct insurance business a “monumental exit”, saying it could open the door for more industry departures that could leave Australians seriously under insured.

Your Money reported on Thursday that TAL quietly made 50 staff redundant last week, citing a review of its Insuranceline business.

The move may affect TAL’s status as the largest direct insurance provider in Australia. Its direct insurance premiums in 2017 were valued at around $1.1 billion.

The direct insurance model – where consumers are sold insurance online or over the phone – was caught in the crosshairs of the royal commission last month following revelations that insurers had used dodgy sales tactics to sell what often amounted to junk policies.

Wealth manager ClearView’s risk executive Gregory Martin conceded during the insurance public hearing that it was difficult to see how direct insurance could be both profitable and legally compliant.

TAL seemed to be in agreement today, making the announcement that the redundancies were necessary as it was stepping away from its direct insurance business Insuranceline, which sells life, income, pet, and funeral insurance.

Now, a life insurance executive – speaking to Your Money on condition of anonymity- has said that given TAL was the original architect of direct insurance in Australia this was a “seismic shift.”

“It was the biggest player in the direct market and for many years, the only player,” the executive said. “They are the people who brought these contracts to the market and now that they are turning and leaving the industry, it certainly looks like they’re taking the money and running.”

In a statement, TAL said that its decision was part of “an ongoing program of change related to our direct sales business model [that] has been underway for some time, including a move away from outbound sales channels.”

It is the latest, and largest, development to occur in the wake of a scathing royal commission that skewered direct insurance providers, revealing they had used aggressive cold calling sales tactics, and in one instance even sold a policy to a man with an intellectual disability. 

“A lot of what was raised during the royal commission were not isolated examples. If there were not systematic issues with TAL, then why exit?” the executive said.

While the royal commission demonstrated that many of the direct insurance policies were poorly designed (one ASIC report showed that as many as three in five policies were cancelled within three years), the departure of the largest provider will leave a significant void.

That’s because direct insurance generally covers Australians who cannot afford to see an adviser and aren’t covered by group insurance.

Accordingly TAL’s decision could aggravate Australia’s under insurance problem, with 2015 estimates putting the gap at $1.8 trillion.

“The royal commission slammed the bad products but there were some okay ones as well. What is going to fill the void for people who can’t afford to see an adviser and that might not be covered via super?” the executive said.

Significantly TAL’s decision to abandon, rather than improve, its direct insurance offering sends a clear signal to the industry and could be just the first of the direct insurers to fall, the executive believes.

“No one was leaving before this. If TAL exits, having had a scale that others don’t, it indicates that other insurers would probably be better of getting out themselves.”

Your Money digital editor Aleks Vickovich spoke about the implications of TAL’s announcement with Ingrid Willinge on Trading Day

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