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ASIC examines add-on and consumer credit insurance

Insurers must take some responsibility for ensuring products meet consumers’ needs, Australian Securities and Investments Commission (ASIC) Deputy Chairman Peter Kell told last week’s Insurance Council of Australia regulatory seminar.

“Product manufacturers cannot simply wash their hands of the actions taken by the distributors of their products,” he said.

He says the regulator will conduct a comprehensive review of add-on insurance sold through car dealerships, after early investigations revealed the product may deliver minimal benefit to consumers.

ASIC will also continue to focus on consumer credit insurance, and is still taking action on the insurance aspects of the Federal Court case concerning The Cash Store (TCS).

The court imposed a record $18.975 million civil penalty against payday lender TCS and its financier for Credit Act breaches and TCS’ “unconscionable conduct” over the sale of credit insurance.

Although most of the penalty relates to Credit Act breaches, Mr Kell says the insurance – which the court described as “useless” – is a key issue for ASIC.

The court found the insurance was sold to unemployed people who would mostly never be able to make claims. See earlier story

“Industry processes should promote targeting of products to those consumers who actually benefit from them,” Mr Kell said.

He later told insuranceNEWS.com.au ASIC is considering whether the TCS case has lessons for the industry on how the insurance was distributed.

“As the Financial System Inquiry has highlighted, there is a growing expectation that product manufacturers need to take some responsibility for distribution of their products,” he said.

He also told the seminar the regulator has begun inquiries into add-on insurance sold by car dealers and the commercial relationships between insurers, lenders and car dealerships.

“ASIC’s scoping inquiries into add-on products sold through car dealerships have shown that commissions paid by insurers to car dealers can be very high – 50% of the premium or more.”

The value to the consumer is “questionable” in some cases, and the levels of commission create significant risk that insurers will sell products with minimal or no risk of claims, or that the amount the consumer may receive is low, either in dollar terms or relative to premiums.

Insurance add-ons have caused significant insurance problems here and in other jurisdictions, Mr Kell says.