ASIC has released Report 424 Review of no-claims discount schemes setting out the results of its review into the operation of no-claims discount (NCD) schemes.
The key issue identified by the report is that consumers may be under the mistaken belief that where an NCD operates, it represents the only claims impact on premium price. For example, ASIC is concerned that it may not be understood that:
- not-at-fault claims can increase base premiums (despite not affecting NCD ratings); and
- at-fault claims can increase base premiums as well as affect NCD ratings.
Other key findings include:
- the cost of purchasing NCD 'ratings protection' can be higher than the benefit obtained by maintaining the NCD rating; and
- the degree of disclosure of the key elements of no-claims discount schemes is generally inadequate.
ASIC makes a number of recommendations in relation to revising and improving the operation of NCD schemes, particularly by increasing the level, accuracy and clarity of disclosure in relation to the schemes, reiterating some of the principles and recommendations put forward by the Final Report of the FSI, particulary in relation to facilitating consumer understanding of key features of insurance products.
Insurers should consider reviewing the operation of their NCD schemes and also their disclosure through PDSs and promotional material.
Click here to read ASIC's media release.