Direct life insurers are guaranteeing cover at the point of claim rather than when policies are sold, the Association of Independently Owned Financial Professionals (AIOFP) says.

“The massive consumer issue is the preference for institutions to now sell policies directly to consumers through telemarketers and online websites,” it says in a submission to the Senate Economics Legislation Committee concerning the Life Insurance Framework.

“This form of policy is fundamentally flawed because the underwriting to guarantee cover for consumers is performed at the point of claim, not when the consumer actually buys the policy.”

The AIOFP cites Financial Ombudsman Service records as evidence that more than half of direct life claims are rejected.

“Consumers think they have cover but, due to the ridiculously simple ‘five-question underwriting’ strategy in place, they are getting refused cover in more than 50% of all policies,” the submission says.

“This is all happening many years after the policy has been purchased, when it is all too easy to reject cover based on the ‘current circumstances’ and ‘lack of disclosure’.

The AIOFP argues policies managed by independent advisers have a rejection rate below 4%.

“You can no doubt see why institutions want to go directly to consumers… greater profits and no commissions payments to advisers.

“This legislation is all about institutions wanting to sell a potentially flawed, highly profitable range of online products to unwary consumers who think they have protection for their family.”

The AIOFP wants the clawback period to cut to one year, set at 80% of the commission, with institutions also bearing some of the costs.