CGU Insurance and its wholly owned underwriting agency Accident and Health International (AHI) will refund more than $2 million in payday loan consumer credit insurance (CCI) premiums and fees.

They will also commission independent reviews into selling of the cover by third parties.

CGU’s undertakings to the Australian Securities and Investments Commission (ASIC) follow court action by the regulator against The Cash Store (TCS) – the seller of the CGU product.

Last August the Federal Court found TCS, which is in liquidation, acted unconscionably in selling consumers a “useless” CCI product with its payday loans. The insurance covered against the risk of becoming unemployed, sick or dying during the loan periods, which varied from just one day to two weeks.

Between August 2010 and March 2012 TCS sold the CCI product to 182,838 customers, reaping $2.3 million in premiums. It generally charged about 3.38% of the loan amount.

Only 43 claims were paid during this period, amounting to just $25,118.

The court found the insurance was sold to vulnerable customers, including low-income earners and recipients of Centrelink benefits.

In February the court imposed record penalties of $18.9 million against TCS and loan funder Assistive Finance Australia, for systemic breaches of responsible lending requirements.

This is the largest civil penalty obtained by ASIC.

ASIC Deputy Chairman Peter Kell says the regulator was concerned about the sale of payday insurance “when it was highly unlikely that consumers would be able to make a claim”.

CGU and AHI have agreed to refund the full amount paid by consumers, together with interest, for all sales of the CCI product. They will also commission independent reviews of CGU’s supervision of third parties and AHI’s role as the company responsible for underwriting the payday loan insurance.

CGU spokesman Richard Webb told insuranceNEWS.com.au the insurer and AHI “share ASIC’s concern about the actions of The Cash Store and the unconscionable way it sold an insurance product we have provided”.

Mr Webb says they are “particularly concerned” about the impact of TCS’s actions on vulnerable consumers.

“CGU and AHI take our responsibility [to consumers] very seriously and we want to do the right thing, which means delivering a fair and speedy resolution,” he said.

In March ASIC announced Allianz had agreed to refund about $400,000 in CCI product premiums.

Allianz had an underwriting agency agreement with AHI although it says the product was sold without its knowledge.

The total amount of refunds agreed to by Allianz, CGU and AHI is almost $2.5 million.

ASIC’s inquiries into the sale of CCI by TCS and the role of other entities continues.