Insurance Australia Group Limited [ASX: IAG] Drops a Whopping 4.019%

Insurance Australia saw a steep share value drop of 3.01% this morning, to AU$8.41 a share.

Why the sudden drop?

The stock has been in decline for the past week, but has had a positive performance during the last 12 months.

It could be due to the hovering eye of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, looking over insurance and funeral companies after the scandals that have appeared in the last few months.

Ray Menmuir recently lost his daughter to suicide. His insurance company refused to pay for her funeral, despite the fact he had paid premiums for over 20 years.

The company told Mr Menmuir that he ‘should have read the fine print’, and that his paid plan did not cover the circumstance of suicide.

I felt ripped off, cheated, deceived, lied to, misinformed, misled,’ he said.

Mr Menmuir was forced to take out a personal loan to cover the full cost of his daughter’s cremation and funeral.

Issues such as these will be placed under further investigation by the Royal Banking Commission, especially the financial services in regional and remote areas, such as the Indigenous communities.

This week, ACBF, a Gold Coast-based business selling funeral insurance almost exclusively to Indigenous Australians, will be analysed as part of the banking royal commission investigation. The analysis will feature as part of a broader look at financial services and how they interact with the Aboriginal and Torres Strait Islander communities.

Jemima McCaughan from NSW Legal Aid said she believed the funeral insurance industry targeted vulnerable people.

We see issues with unfair sales tactics across the funeral insurance market.

Funeral insurance by its nature targets vulnerable people and is expensive.’

Ms McCaughan added that most people who sign up for funeral insurance don’t understand that if they stop paying their premiums, they would no longer have the right to a funeral payout.

Every time I got behind in a payment they’d be right on you for the money they wanted,’ Mr Menmuir said.

Similarly, Australia’s biggest wealth manager, AMP, is currently facing a new lawsuit for allowing a unit of financial planners to reduce clients’ life insurance cover in order to earn higher fees, according to Reuters.

According to the court filing last Wednesday, the Australian Securities and Investments Commission (ASIC) decided to sue AMP’s financial planning arm after finding out that ‘six [AMP] representatives advised about 40 life insurance customers to buy new policies with lower levels of cover in exchange for higher commissions from 2012 to 2013.

The company was also under public inquiry for allegedly charging clients for advice without providing it.

With these issues making headlines this week, its not too far a stretch to think Insurance Australia may be suffering from similar accusations.

It’s enough to make your blood boil.

Your friend,

Harje Ronngard,
Editor, Money Morning

PS: 5 Fatal Stocks: Discover why these five household-name stocks could be the first to lose you money when Aussie stocks drop dramatically. Free report available now.

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