Add-on insurance report released
The findings in ASIC’s recently released review of add-on insurance demonstrate the types of considerations ASIC believes to be relevant when judging whether products are suitable for consumers. The ASIC Report therefore gives an early indication of the likely impact of the proposed product design and distribution duty and the product intervention powers recommended by the Financial System Inquiry (FSI). ASIC specifically references these recommendations in the Report.
The key findings of ASIC’s three year review into the sale of add-on insurance which led to ASIC Report 492 A market that is failing consumers: The sale of add-on insurance through car dealers (REP 492) are that add-on insurance sold through car dealers involves:
- expensive, poor value products;
- products that provide consumers very little to no benefit; and
- a sales environment with pressure selling, very high commissions and conflicts of interest.
ASIC warns insurers that they must make substantial changes to the pricing, design and sale of add-on insurance products or face additional regulatory action. This may include:
- targeted enforcement action against insurers;
- remediation for consumers who have been missold insurance;
- publicly naming insurers who fail to deliver improved outcomes for consumers;
- law reform; and
- continued reviews and surveillances of insurers that are identified in the Report as problematic.
The specific commitments the Regulator is seeking from insurers are:
- better claims ratios;
- reduction in commissions paid to distributors of add-on insurance products;
- improvement in product value through price reductions and better design;
- stop selling single, upfront premium products particularly where financed through the loan contract;
- refunds for consumers who have been sold policies in unfair circumstances, for example where they would never have been eligible to claim; and
- redesign and proactive auditing the sales process of products to account for behavioural biases and to ensure that consumers can make informed choices.
ASIC notes that the insurers who were involved in the review have indicated that they intend to implement a 20 percent cap on commissions on the products in response to the concerns.
ASIC’s concerns and approach reflect the growing trend to more proactive ‘nudge’ regulation which will only increase in the lead up to the introduction of the proposed product design and distribution duty and the proposed product intervention powers.
A copy of REP 492 and ASIC’s media release are available here: http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-301mr-asic-puts-insurers-on-notice-to-address-serious-failures-in-the-sale-of-add-on-insurance-through-car-dealers/.
In addition to its media release and REP 492, ASIC has also made available:
- a podcast on the topic;
- an infographic on dealers’ commissions vs. claims; and
- a MoneySmart infographic for consumers outlining reasons why they should not buy ‘mechanical breakdown’ (extended warranty) insurance.