ASIC reported on its investigation into the sale of add on insurance to consumers at the 2014 annual credit conference. 

ASIC presented specific data collected about add on insurance sold with car finance, emphasising that the mis-selling of car finance / add on insurance was a regulatory priority for ASIC.

Key Principles

  • Although ASIC’s investigation focused on add on CCI in relation to car finance, the principles are likely to apply to all consumer insurance cross sales.
  • A licensee should have an up-front discussion with the borrower about insurance, then determine whether the cost of insurance needs to be taken into consideration when making the initial suitability assessment. 
  • Licensees should conduct due diligence into the product it is selling or promoting.  Products with low pay-out rates relative to similar products in the market should probably not be sold. 
  • Licensees should understand the product’s limitations and exclusions, and (1) not mis-sell or promote products that won’t meet the consumer’s general needs, and (2) clearly disclose limitations and exclusions.
  • Pressure selling, harassment, or coercion tactics are never acceptable with respect to credit and financial products.

Regulatory basis for ASIC investigation

The key requirements are set out in:

  • section 47(1)(b) of the NCCP Act which prohibits the licensee from benefiting from any conflict of interest, such as receiving commission for mis-sold products;
  • section 12DF of the ASIC Act which prohibits engaging in conduct that is likely to mislead about the nature, characteristics, or suitability of a financial service; and
  • section 12DJ of the ASIC Act which prohibits supply of financial services using undue coercion

ASIC’s preliminary findings

ASIC’s preliminary investigation identified that consumers often feel pressured when sold add on insurance.  Consumers were also being mis-sold insurance products that excluded or limited substantial numbers of situations and amounts of coverage.

ASIC claimed that frequently tactics such as stringing out the sales process, making the consumer feel obliged, heavy sales tactics, and bombarding the consumer with paperwork have been used in the vehicle industry to sell ad on insurance.  The products are not necessarily suitable for the individual consumer’s needs.

ASIC considers that licensees should conduct due diligence when selecting insurance products to promote or sell.  Licensees should understand the limitations and exclusion of products, and either:

  1. not sell or promote the product if it does not meet the needs of the individual consumer, or
  2. clearly disclose the limitations and exclusions of the product in a fair and honest way up front. 

Sales should not be made in pressure situations.

Any variation from the principles could result in the licensee engaging in misleading and deceiving conduct, as well as a strict breach of various Acts and Codes.