Funeral insurance rorts RIP

THE days of funeral insurance rorts appear numbered as providers realise it's a case of change or be changed.

THE days of funeral insurance rorts appear numbered with major cover providers making major changes as the corporate regulator threatens further action against the sector.

InsuranceLine - the industry no.1 with an estimated 40 per cent share - is finalising a revamp of existing products after an overhaul at main competitor Real Insurance, which has a fifth of the market.

Both moves appear to have been triggered by a direct warning from the Australian Securities and Investments Commission (ASIC).

The changes at InsuranceLine and Real will likely bring down the cost of funeral cover for tens of thousands of policyholders - and for those who take out protection in the future.

InsuranceLine's looming revisions are expected to match changes at Real and include premium reductions for those in their 70s and a freeze for those in their 80s.

"We are making changes to our existing products," Jim Minto, CEO of TAL Services Limited, which owns InsuranceLine, said.

He would not discuss detail because the revamp was still to be finalised.

Already InsuranceLine has introduced new products with premiums that don't increase with age, as well as caps on contributions and partial payouts if a policyholder cancels their cover after more than five years.

"All those things help to reduce the consumer hazard," Mr Minto said. "We as an industry need to review these products so there is less consumer hazard."

InsuranceLine says its new products cut the cost of cover by up to 25 per cent.

However, critics say the payouts from "flat", capped policies will be eroded by inflation and could fall short of future funeral expenses.

The reforms by Real Insurance, owned by Hollard Financial Services, reduce premiums by as much as 64 per cent, according to ASIC.

Hollard general manager John Roche said: "The biggest change has been significantly reducing the cost in the 70 to 80 age bracket when the consumers need increases but their incomes reduce.

"Real believes that this, coupled with the freeze from 80, provides a product that addresses the key affordability issue in the consumer group that most benefits from these style of products."

ASIC also made Real change potentially misleading advertising to explain that premiums can increase with age and that a consumer could end up contributing a lot more than will be paid out - the latter being consumer groups' major criticism of funeral insurance.

Greg Kirk, who head ASIC's monitoring of insurance, said: "We've resolved one matter, but there is potential for us to take further action."

ASIC is also starting a 12-month in-depth review of funeral insurance. If it finds major ongoing problems it will seek tougher powers from the Federal Government.

Consumer groups say people considering funeral cover may still be better off opening a savings account and making regular deposits, especially if they are in good health.

To assist those who want to fight a funeral insurer, News Limited has commissioned expert insurance lawyer and Maurice Blackburn principal John Berrill to prepare a letter than can be sent to the cover provider.

DOWNLOAD THE LETTER HERE

(Please note: The aim of this letter is to help you to ask the right questions about an existing funeral insurance policy. It does not constitute legal advice)

Many elderly people take out funeral insurance to avoid burdening family with a big cost after their death.

But the cover itself can end up being the burden - and not just for the policyholders.

Cathy Milton and her daughter Elisha Holley have been fighting on behalf of Mrs Milton's parents - Mrs Holley's grandparents - in order to get a fair deal from InsuranceLine.

Kevin, 82, and Margaret, 81, who asked that their surnames not be published, had contributed more than $12,000 towards their funerals when they said enough was enough.

But InsuranceLine told them they'd have to pay until they were 90 - or lose their cover. That would have meant paying a further $12,000.

An initial letter from Mrs Milton to InsuranceLine led to an offer of a near-halving of the premium. But that wasn't nearly good enough.

So Mrs Milton and Mrs Holley complained to the Financial Ombudsman Service (FOS).

Mrs Holley wrote the FOS a letter that set out what her grandparents wanted - to not pay any more.

A confidential agreement has since been reached. Mrs Milton yesterday described it as "pretty good".

Mrs Holley said the original policy sold to her grandparents did not adequately disclose how premiums increased over time.

"No one in their right mind would agree to pay that much for insurance," Mrs Holley said.

She said consumers who wanted to resolve such disputes needed to clearly state the outcome they wanted.

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