ASIC is calling for insurers provide further assistance to consumers to help them make good decisions about home insurance and to review the way they distribute add-on insurance. ASIC is calling for insurers provide further assistance to consumers to help them make good decisions about home insurance and to review the way they distribute add-on insurance. This relates to FSI recommendations 21 and 26. The Government said it would introduce a new product design and distribution duty and support industry initiatives to improve consumer understanding but it seems ASIC is not willing to wait for that.
Positively, ASIC has found in ASIC Media Release 16-053MR that the home insurance sector has made a range of improvements in response to ASIC's recommendations in ASIC Report 415 Review of the sale of home insurance released in October 2014. For example, most insurers now provide a sum-insured calculator to consumers, which reduces the risk of underinsurance.
However, ASIC's recent survey results indicated that insurers can take additional steps to help consumers select the right level of home insurance cover by:
- explaining that the sum insured amount needs to enable complete replacement of contents or complete rebuilding of their home;
- providing guidance about coverage or sum insured amounts;
- referring to the Key Facts Sheets; and
- providing information about additional rebuilding costs due to natural perils, to better estimate rebuilding costs after a total loss.
ASIC cites with approval an example of an insurer's website that allows customers to receive targeted information about their suburb and goes on to indicate that it is seeking to identify and address barriers to giving financial product advice to insurance customers.
ASIC has reviewed insurers offering life insurance as part of consumer credit insurance policies sold through car dealers. The findings are published in ASIC Report 471 The sale of life insurance through car dealers: Taking consumers for a ride, which found that life insurance sold through car dealers is:
- substantially more expensive than comparable life insurance products for less cover;
- usually priced as an upfront premium which is added to the car loan, so consumers pay interest on top of the premium, which can substantially increase the cost of the product;
- in one in ten policies sold to consumers aged 18 to 21, who ASIC says are unlikely to need life insurance;
- substantially more expensive for small business customers than identical personal use insurance;
- sold to consumers who have a low level of awareness of the add-on insurance product and its features;
- likely to provide very low claim payouts (6.6%) relative to premiums;
- sold by car dealers who are paid high commission by insurers on sales;
- subject to high (10%) levels of customers exercising cooling off rights;
- sometimes subject to pressure selling or at least leaves customers feeling taken advantage of.
In ASIC Media Release 16-049MR, ASIC Deputy Chair Peter Kell said 'The message to industry is clear: substantial improvements need to be made to both the design and distribution of these products. Insurers must address the high costs, poor value and poor claim outcomes of their add-on products, especially when the very same insurers provide alternative products that offer cheaper and more comprehensive cover.'
As well as life insurance add-on products, ASIC is also reviewing the design and sale of general insurance add-on insurance products.
ASIC has also released ASIC Report Buying add-on insurance in car yards: Why it can be hard to say no, which analysed qualitative research on the experience of consumers who are sold add-on insurance by car dealers. The report found that consumers who purchased add-on insurance products:
- had no awareness of add-ons, including their value, before entering the car yard;
- had already invested large amounts of time, energy and mental effort in buying the car and so, by the time they were offered the add-ons, found it hard to say no to the offer of add-on insurance;
- said that they valued the insurance for providing peace of mind, but few could recall which products they had purchased, how much they cost and what they were actually covered for; and
- some consumers who did remember what they had bought, regretted their decisions.
ASIC concerns included:
- strong incentives to sell products, with up to 75% of the premium being paid as commission;
- add-on insurance products can often be more profitable for distributors, such as car dealerships, than the primary product being sold (such as the car);
- insurers compete for access to dealer networks, resulting in higher commissions and higher cost for consumers (reverse competition);
- compared to other similar products, add-on insurance can provide poor value cover and may cover relatively narrow risks; and
- unfair sales practices and processes may be unfair or coercive.