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Stronger proposals for add-on insurance?

The Consumer Action Law Centre has welcomed the recent move by the Government to buckle down on add-on insurance, an ongoing area of focus for poor consumer outcomes, and has also called for the proposals to be strengthened.

Consumer Action Senior Policy Officer, Cat Newton, said, “Every day, millions of unassuming Australians are sneakily sold insurance that they don’t want or need. It’s smuggled in with a big-ticket purchase, like a home loan, flights or even a family pet. We’ve all been there—trying to book a holiday or buy a car, and at the last minute the salesperson will convince you that you should also purchase insurance because it’s the responsible thing to do.”

According to the official statement released by the consumer action group earlier this week:

  • the break in the sales process should start once the primary goods are bought, financed and delivered to prevent another pressure-sale opportunity when a person returns to sign any loan documents or collect the car.

  • salespeople should not be able to over-ride the deferral period though a ‘customer-initiated purchase’ that is open to abuse.

  • an increase in the deferral period should be increased to at least seven days.

Last week, the Australian Securities and Investments Commission (ASIC) announced they would be taking a closer look at add-on insurance as it relates to car sales.

ASIC Commissioner Sean Hughes said, in the official ASIC statement, “There has been a history of unfair conduct and poor results for consumers in the add-on insurance market. We have seen policies sold to consumers when they have been ineligible to claim under them. ASIC has secured over $130 million in refunds to compensate consumers for their losses from these practices.”

Three years ago, the regulator released three reports looking at add-on insurance products related to car sales.

The CALC submitted a response to the Treasury’s Reforms on the sale of add-on insurance: Proposal Paper, along with six further consumer action groups—the Financial Rights Legal Centre, CHOICE, Consumer Credit Legal Service WA, Consumer Credit Law Centre SA, WEstjustice and the Australian Communications Consumer Action Network—that had held ‘long-standing concerns with junk add-on insurance’.

The group listed their primary concerns earlier this week as:

  • The trigger for the deferral period being a ‘financial commitment’: The deferral period must start after the primary good or service has been purchased, financed and delivered to prevent the collection of the good, or signing of the loan contract, being used as a high pressure sale of junk add-ons, which would defeat the very purpose of the reform.

  • The one-day ‘customer initiated’ completion of sale: This is open to abuse by retailers, who can pressure people into calling up the next day to get the purported discount or deal. This proposal is particularly risky when combined with the current proposed trigger event of an application for finance because consumers may feel pressured to follow the salesperson’s suggestion in order to secure finance. This proposal creates a huge loophole that is inconsistent with Commissioner Hayne’s recommendation that loopholes be minimised. It should be removed from the final model.

  • The duration of the deferral period: This should be extended to a minimum of seven days, as recommended by the Productivity Commission.

  • Exemptions: Any exemption from the deferred sales model provided by the Australian Securities and Investments Commission (ASIC) should be time-limited and apply at the individual product level, not the product category level. Criteria for exemptions should include: a claims ratio of 90% (consistent with comprehensive car insurance), to ensure the product is good value; and a ban on conflicted remuneration.

  • Tiered design: The three-tier design is overly complex and subject to the limitations of the Product Intervention Power (PIP). We recommend that the deferred sales model apply economy wide, unless modified by a Product Intervention Order.

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