ASIC is seeking feedback on proposals to reform the sale of add-on insurance through car dealerships.
Consultation Paper 294 sets out ASIC’s approach and proposed reforms in detail. The reforms would see the introduction of:
A deferred sales model
ASIC proposes to introduce a deferred sales model which would insert a pause in the sales process for add-on insurance products. The proposal is that a period of between 4 to 30 days must elapse before dealers could sell an add-on insurance product to a customer. ASIC has suggested 3 points in time from which the deferral period could commence:
a. When the customer communication is provided;
b. When the agreement to purchase the vehicle and/or arrange financing is finalised and the customer communication has been provided; or
c. When the vehicle has been delivered to the customer and the customer communication has been provided.
During the deferral period:
- Insurers would be restricted from offering, or entering into, a contract for an add-on insurance product with a customer;
- Dealers would be restricted from arranging for a consumer to apply for an add-on insurance product or referring a consumer to a product provider in relation to an add-on product; and
- Consumers would be restricted from initiating the purchase of an add-on insurance product directly with the provider, or opting out of the deferral period.
Enhanced supervision obligations on insurers
This reform would see the introduction of more robust and targeted requirements for insurers to meet when supervising and monitoring their authorised representatives who sell add-on insurance products. These requirements would be based on the risks for customers.
ASIC has indicated that appropriate risk indicators could include tailoring the level of supervision according to:
- The amount and basis on which commissions are earned – e.g. an insurer could have more robust supervision requirements if commission payments are solely sales-based, whereas less rigorous requirements may be imposed if different criteria are used for commission; and
- Whether a representative has been identified as having a history of non-compliant or unfair sales practices – e.g. if a representative has failed to follow instructions regarding the sale of add-on insurance products, or to mislead or pressure customers to buy products in ways that are unfair, the level of supervision should be enhanced (and the provider should not simply rely on additional training without also testing that this has changed the representative’s behaviour).
Possible requirements that could be introduced to implement enhanced supervision obligations include:
- Detailed reviews of penetration rates;
- Post-sale interviews with a sample of customers or shadow shopping exercises;
- Requiring providers to undertake strict accreditation checks both before appointing authorised representatives and also afterwards (on a continuing basis);
- Requiring insurers to have greater visibility about complaints; and
- Requiring insurers to have procedures in place to more effectively deter representatives from engaging in unfair conduct (e.g. removing or suspending their authorisations, actively identifying and compensating customers where systemic misconduct has occurred and seeking clawbacks of commissions paid in relation to those sales).
ASIC proposes to implement any reforms developed through the consultation process by using its existing statutory powers to modify provisions of the Corporations Act. The proposals would apply to all add-on financial products sold in connection with the purchase of a new or used car, excluding comprehensive car insurance and compulsory third party insurance.