No wiser than a daw: the case for stronger regulation of funeral insurance

“But in these nice sharp quillets of the law, Good faith, I am no wiser than a daw.” William Shakespeare, Henry VI, Part One, Act 2, Scene 4.

In October 2015 the Australian Securities and Investments Commission issued a report Funeral Insurance: A snapshot. This report dealt with the mainstream insurance industry, and raised a substantial number of consumer protection issues.

Key findings were reported as follows:

On the whole, premiums rose steeply for persons over 50, as most consumers held stepped premiums that increase with age. For consumers aged 80–84, the average annual premium was four times as much as for consumers aged 50–54. There was a high rate of policy cancellations, with nearly 55% of cancellations occurring during the first year of the policy. Of the cancellations, 65% were actively initiated by the customer, while the rest (35%) were cancelled by the insurer for non-payment of premiums. Most insurers identified the cost of premiums as the most common reason for cancellation. While over half (51.2%) of consumers with funeral insurance were aged 50–74, funeral insurance sold to Indigenous consumers had a much younger age profile (50% were aged under 20). A higher proportion of Indigenous consumers also had their policies cancelled for non-payment of premiums. (emphasis added).

The report also noted that for some welfare recipients, funeral insurance premiums comprised up to ten percent of their pensions.

In relation to Indigenous consumers, the report noted:

While a few insurers had unusually high numbers of young persons insured due to offering free additional cover for children, there was only one insurer with significant numbers of persons insured under 30 for which premiums were being paid. This insurer’s products were marketed to Indigenous consumers and their age profile of persons insured was anomalous compared with those of other insurers we reviewed. For this insurer, 50% of persons insured were aged under 20 and 33% were under 15. A higher proportion of Indigenous consumers also had their policies cancelled for non-payment of premiums.

Notwithstanding efforts by ASIC to highlight the potential pitfalls and costs to Indigenous consumers of funeral insurance policies (see links here and here), it seems that this is an issue which won’t go away.

In November 2015, Minister Scullion told the ABC that he would look into the reports and:

would write to Aboriginal land councils for advice and speak with consumer affairs about ensuring safeguards and education for people as to what they were getting for their money.

There appears to have been no outcome to date announced by the Minister arising from this promised action. There would be merit in an update being provided by the Minister to the public at large.

The latest development is a Federal Court decision which overturned a Government decision to prevent the use of Centrepay (which automatically deducts payments from a welfare recipient’s entitlements at source). Media report here.

The decision of Logan J in this case is somewhat curious. The first two paragraphs provide a succinct account of the history of state paternalism in relation to Aboriginal peoples. However the decision taken by Centrelink, based on a policy decision of former Minister for Human Services Marise Payne in 2015, was framed as applying to the use of Centrepay for all funeral insurance services, and not indigenous services specifically. The focus on Aboriginal policy arose because only one insurance company, The Aboriginal Community Benefit Fund Pty Ltd (and its associated corporate entities) utilised Centrepay, and the vast majority of its customers are Indigenous citizens. The reasons for the decision of Justice Logan, while extremely convoluted (at least to this non-lawyer), appear to boil down to a finding that there is no power within the relevant statutes authorising the CEO of Centrelink to make such a decision. In other words, Logan J’s formal reasons do not relate to paternalism, but are based on statutory interpretation of the relevant legal framework.

Putting aside the legalities, there appear to be strong grounds for Government to put in place a robust regulatory framework which ensures that consumers (whether indigenous or not) are adequately informed prior to making purchases of funeral insurance policies.

The weight of evidence appears to be shifting towards a conclusion that there is scope for government to strengthen the regulatory regime. It also seems to be a no-brainer that government ought not to allow its Centrepay system to be accessed by private sector firms without robust checks and balances. It appears that such a situation does not currently exist. In relation to Indigenous welfare recipients, it is arguable that they are may be particularly vulnerable, and that this merely increases the weight of argument in favour of more general protections.

Paternalistic policies in relation to Indigenous citizens have played a sorry part in our history, and racism, segregation, and repression often hid under the guise of ‘protection’. But there is a place for regulation of inappropriate behaviour by firms, particularly in relation to vulnerable citizens. Not all regulation is inappropriately paternalistic.

So what policy conclusions should be drawn from these most recent developments?

First, as I have argued previously, poor financial literacy is a major issue of concern in Indigenous affairs, and needs urgent and significant policy priority. The range of issues around financial literacy and banking would benefit from further sustained attention from one of the Parliament’s Committees.

Second, the Commonwealth should urgently examine the available options to address the use of Centrepay by private sector firms, and in particular ensure there is a robust set of checks and balances around any such use. This may require legislation.

Third, the Commonwealth should initiate action to strengthen the regulatory regime around the same of funeral insurance products, particularly to vulnerable consumers.

Fourth, the Commonwealth should release the results of the investigations undertaken by Minister Scullion and his Department in response to the November 2015 revelations of issues of concern around Indigenous people’s purchase of funeral insurance policies.