ASIC identifies a market failing consumers in the sale of add-on insurance through car dealers and has warned the public about getting lured into buying these products when buying a car.
ASIC has found add-on insurances sold by car dealers are "expensive", "poor value" and provided "very little to no benefit" in a sales environment characterised by "pressure selling, very high commissions and conflicts of interest".
In a scathing report recently released by ASIC, the regulator highlights that in some instances insurance companies are paying up to 79% of the premium paid by a consumer to car dealers and those arranging the insurance but only 9% of the premium is paid back to consumers by way of approved claims.
ASIC's investigation found that over the past three years roughly $1.6 billion in premiums were collected on car insurance add-ons, while only $144 million was paid out in successful claims.
Car dealers earning commissions of up to 79 per cent pocketed $602 million, over four times more than consumers received in claims.
ASIC Deputy Chairman Peter Kell said "There are serious problems in this market that need to be immediately and comprehensively addressed by insurers."
"We are certainly looking at using all the powers we have to drive some better value but this market is a good example of where ASIC would look at using product intervention powers if we had them."
"ASIC will be undertaking further work, including potential enforcement action, to ensure that this market delivers acceptable outcomes for consumers," he said.
"We will also be looking at how insurers can refund consumers who have been sold inappropriate products."
In recent years, ASIC has sounded warnings about add-on insurances that are sold through car dealers.
Insurance products that have come under scrutiny are:
Post-GFC, profits made from selling a car were compressed which required dealers to look for other avenues to maintain profitability. Selling consumer credit insurance, gap insurance and warranties turned out to be a savour as the profit earned from selling these products when "bundled" can often be more than the profit received from selling the car. As ASIC highlighted in its report, the high levels of profit earned can result in conflicts of interest leading to consumer detriment.
Consumers are commonly being further disadvantaged by the packaging up of these extra insurance products into their car finance loan as a single upfront premium. This not only makes the policy more expensive but leaves consumers unaware of exactly what they have bought and how much it is costing them. Bundling also means consumers may not get a premium refund for certain products if they repay their loan early.
Car dealers do not need to hold a financial services licence but their employees operate as licensed representatives of the insurance companies.
ASIC's investigations focused on Aioi Nissay Dowa, Allianz Australia, Eric Insurance (formerly known as AVEA), Swann Insurance (part of Insurance Australia Group), MTA Insurance (part of Suncorp Group), NM Insurance (acting as agent for AAI Ltd), and QBE Insurance. Together these seven insurance companies make up roughly 90 per cent of the car dealer add-on insurance market.
If consumers have complaint about any insurance product they have bought they should follow the dispute procedures disclosed in the Product Disclosure Statement which will provide the steps to follow and the relevant contact details.