The Australian Securities & Investments Commission (ASIC) has released two reports examining the sale of add-on insurance products by car dealers.
Car dealers providing finance offer life insurance as a component of consumer credit insurance (CCI). CCI covers the risk of a consumer being unable to make loan repayments due to a serious accident or illness, unemployment or death. In respect of life insurance offered by car dealers, this provides a pay-out if the insured dies, allowing their dependants to continue to use the motor vehicle. The insurance is only valid for the period of the car loan and the level of cover decreases in line with the amount owing on the car.
ASIC reviewed insurers offering life insurance as part of CCI policies sold through car dealers making finding about the comparative price of the insurance with similar insurance purchased through other distribution networks as well as claim limits relative to premiums. Sales practices, consumer demographics and consumer buying practices were also addressed reviewed by ASIC.
ASIC has called on the insurance industry to make substantial improvements to the design and distribution of these life insurance products. In particular, insurers are being asked to address the cost, value and claim outcome concerns raised by ASIC. ASIC notes that some insurers have already committed to making changes, for example charging small business consumers the same as ordinary consumers and that some insurers are also reviewing the offer of life insurance products through car dealers. ASIC has noted these initial steps but have said that if substantial and meaningful changes are not made then they will consider the regulatory options available, including enforcement action.
In addition to examining life-insurance add-on products, ASIC will also be examining the design and sale of general insurance add-on products, which includes general insurance sold by car dealers. Further information can be found here.