The Australian Securities & Investments Commission (ASIC) has continued its campaign for improved disclosure by insurers and their agents – this time in the motor vehicle insurance sphere. On 26 February 2015, ASIC published a report that examines the operation of no-claims discount (NCD) schemes for motor vehicle insurance and concluded that the schemes do not operate in a way that consumers might reasonably expect.
The NCD scheme is a prominent feature of many motor vehicle insurance policies and is founded on the concept of rewarding careful drivers by offering increased discounts to their premiums for each consecutive claim-free insurance period.
The following are key concerns raised in the report:
- There is inadequate disclosure by insurers that prevents consumers from making fully informed decisions about purchasing or renewing a particular policy or in making a claim;
- The schemes create a ‘false’ impression that the policyholder’s claims history has been separated from other factors that determine the price of an insurance policy (such as the sum insured or the type of vehicle), which is not the case;
- The schemes are promoted to reward careful driving. However, ASIC found that between 90–99% of policyholders are on the highest NCD rating already;
- The cost for purchasing ratings protection (PRP) – which is a feature that allows a policyholder to pay an amount of money to retain their NCD rating, despite making a claim that would otherwise affect their rating – are sometimes higher than the benefit obtained by maintaining the NCD rating.
ASIC has made a number of recommendations, primarily to urge insurers to improve their disclosure procedures. Insurers are encouraged to ensure that promotional messages on the benefits of NCD schemes are carefully balanced against actual features, risks and the practical operation of the scheme.
The review and its findings again highlight ASIC’s focus on the adequacy of disclosure and the importance of reviewing products to make sure they meet the expectations of consumers. ASIC continues to take a dim view of insurance products that do not offer value for money, or have terms or features that are difficult to understand, or create misleading expectations. There is no suggestion that NCD schemes (including PRP features) are inherently problematic, but insurers must ensure that the schemes are appropriate for their customers and are not marketed or sold in a misleading manner.