Consumer credit insurance (CCI) is “exceptionally profitable” for insurers and may not give value for money, says the Consumer Action Law Centre.

Australian Prudential Regulation Authority (APRA) statistics show that insurers earned $330 million in CCI gross premium last financial year, with only $76 million paid out in claims.

The product is taken out on credit cards, personal loans or mortgages to cover borrowers in the event of loss of income, death or disablement.

“Consumer credit insurance pays 23 cents in the dollar back to consumers, which is in stark contrast to car insurance which pays out 86 cents in the dollar,” Consumer Action CEO Gerard Brody said.

“Clearly this is a product that is benefitting the finance industry more than it is benefitting Australians.

“A couple of years ago we were complaining that only 34 cents in every dollar was being used to fund claims. The fact that the number has fallen further beggars belief.

“We think it’s likely that this product is being sold to customers who don’t fully understand the product, are unlikely to ever need it and, in some circumstances, may be being sold to consumers without their knowledge.”

Mr Brody says the profitability of CCI could encourage mis-selling, and he is keen to avoid a repeat of the UK situation where £10 billion ($17.9 billion) has been repaid to consumers due to mis-selling of the equivalent product, payment protection insurance.

Earlier this year an Australian Securities and Investments Commission report said there was “significant room for improvement” in CCI.

The report also raised concerns that claiming on CCI policies can be stressful and costly for people already experiencing difficulties such as job loss or illness.

A spokesman for the Insurance Council of Australia (ICA) says the group and its members have worked to improve consumer understanding of CCI.

“ICA has included information on CCI in its recently launched Understanding Insurance website and is a key driver behind an industry proposal to the Australian Securities and Investments Commission (ASIC) seeking endorsement of a self-regulatory key facts sheet initiative to further improve consumer understanding.

“If ASIC responds positively, the industry will then develop the proposal further with input from the Consumer Action Law Centre and other key stakeholders.”