ASIC finds ‘expensive, poor value’ with add-on insurance

20 Sep

ASIC finds ‘expensive, poor value’ with add-on insurance

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Car insurance sold at dealerships ‘expensive, poor value’, ASIC finds

By Gloria Kalache

Posted on www.abc.com.au – 12 Sep 2016, 12:43pm

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ABC Image: The report found consumers payed $1.6 billion in insurance premiums.

Consumers are being sold expensive, poor value insurance products which provide them with little or no benefit, a scathing review by the Australian Securities and Investment Commission (ASIC) has found.

The three-year review looked at the sale of a through car dealerships.

Add-on insurance products are sold to consumers when they buy a new or used car at a dealership and include tyre and rim insurance, mechanical breakdown insurance and extended warranties.

ASIC deputy chairman Peter Kell said there were a number of concerns with the industry.

What ASIC wants:

  • Significant reduction in amount of commissions paid to sellers
  • Reduction in price, better product design
  • Move away from single upfront premiums

“There are serious problems in this market that need to be immediately and comprehensively addressed by insurers,” he said.

“ASIC will be undertaking further work, including potential enforcement action to ensure that this market delivers acceptable outcomes for consumers.”

Commissions received by car dealers for selling this type of insurance were a major driver, with salespeople earning $602 million – more than four times what consumers received in claims.

The report also found consumers paid $1.6 billion in premiums and received only $144 million in successful claims.

Payment for this type of add-on insurance was often packaged into the customer’s car loan as a single upfront premium, which could bump up the cost of the product by increasing the loan amount and interest paid.

Consumers being sold ‘junk insurance’

The Consumer Action Law Centre’s Gerard Brody said customers should not be tricked into buying insurance in a car yard.

“It’s clear that when insurance is sold in a car yard it’s benefiting the car dealer more than it’s benefiting you,” he said.

“If someone wants to buy insurance then they should consider all the options available in the market place and shop around and get a good deal rather than accepting what the car dealer has to offer.”

Mr Brody said people who had signed onto “junk insurance” might be able to get their money back.

The organisation has set up a website where people can write a letter to demand their money back and Mr Brody said hundreds of people had signed up.

Cap on commissions will be introduced: Insurance council

The Insurance Council of Australia (ICA) said it would seek to cap commissions to 20 per cent, subject to the approval of the Australian Competition and Consumer Commission, to reduce incentives for inappropriate sales practices.

It would also enhance disclosure to ensure customers better understood the policies they were buying and enhance sales systems to identify and prevent the sales to customers who would receive limited benefit from it.

The council’s chief executive, Rob Whelan, said the changes had stemmed from a long consultation with ASIC.

“The ICA and its members are working to introduce measures to address ASIC’s concerns about these products and sales practices,” he said.

“Insurers agree the sales process could be improved to assist consumers [to] make better decisions on insurance.”

ASIC welcomed the introduction of a cap, but said if the changes were not implemented quickly it would look to take further action.

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