The Australian Securities and Investments Commission (ASIC) has released a report on add-on general insurance policies sold through car dealers. ASIC have concluded that the market is failing consumers and there are serious problems which need to be addressed immediately and comprehensively by insurers. This follows on from two reports released earlier this year about the sale of add-on life insurance by car dealers, (see our previous post here).
The new report reveals ASIC’s key findings regarding add-on insurance, including that:
- Consumers receive little financial benefit from add-on insurance as they receive very low claim payouts;
- Car dealers earn over four times more in commission than what consumers receive in claims, with commissions as high as 79%;
- The insurance products are commonly packaged up into the consumer’s car loan as a single upfront premium which can substantially increase the cost of the product, decrease consumer awareness about the policy and create unfair outcomes if the consumer repays the loan early; and
- The car sales environment hinders consumers making good decisions due to the conflicts of interest and pressure sales built into the distribution model, with consumer focusing on purchasing the car rather than the complex insurance policy.
ASIC has put general insurers on notice to improve consumer outcomes by making changes to the pricing, design and sale of add-on insurance products.
The key commitments ASIC is seeking from insurers are:
- A significant reduction in the amount of commissions paid (insurers have already notified ASIC that they intend to implement a 20% cap on commissions which ASIC has acknowledged as a positive step);
- A significant improvement in the value offered by these add-on products via substantial price reductions and better design and cover;
- Moving away from single upfront premiums; and
- Providing refunds to consumers who have been sold policies in unfair circumstances (e.g. if they were sold a policy under which they were never eligible to claim).
If improvements do not occur, ASIC has said they will take further action, including enforcement action where appropriate.