The corporate, markets and financial services regulator, Australian Securities and Investments Commission (ASIC), has formed a Consumer Credit Insurance (CCI) Working Group to improve outcomes for consumer credit insurance.
The CCI Working Group, comprising representatives from the banking industry and consumer advocates, will promote a range of reforms, including a deferred-sales model for CCI sold with credit cards over the phone and in branches.
CCI is a type of add-on insurance sold with credit cards, personal loans, home loans and car loans. It is promoted to borrowers to help them meet their repayments if they lose their job, become sick or injured, or die. However, CCI has long been associated with poor consumer outcomes in Australia and overseas, including consumers being unaware that they have purchased CCI and consumers being ineligible to make a claim on their CCI policy. Compared with other common insurance products (such as car and home insurance), consumers can receive very little back in claims compared to what they pay in CCI premiums.
The establishment of the CCI Working Group comes off the back of extensive work by ASIC in relation to CCI, including audits of eight Australian banks following systemic illegal conduct in the US by Wells Fargo Bank as well as work in relation to add-on insurance products (including CCI) sold through car dealerships.
In a statement, ASIC says that following discussions, the banks have now committed to a range of measures to improve consumer outcomes in relation to CCI. Significantly, this includes a deferred-sales model for CCI sold with credit cards over the phone and in branches. This will mean that consumers cannot be sold a CCI policy for their credit card until at least four days after they have applied for their credit card over the phone or in a branch. This reduces the risk that a consumer will feel pressured to purchase the CCI product, or purchases a CCI product that does not meet their needs.
In addition, the CCI Working Group will identify improvements that will be made to banks’ sales practices for CCI on credit cards sold online, and with other loan products in all sales channels. For example, the banks have committed to strengthening their processes for obtaining express consent from customers who purchase CCI and to provide improved disclosure about the cost and duration of the policy.
ASIC will monitor the effectiveness of the changes to assess if further reforms are required, including through metrics that indicate the value being provided to consumers by CCI products.
The Australian Bankers' Association will incorporate these measures into the revised Code of Banking Practice and will accelerate their introduction so that they commence in the first half of 2018 and well before the new code is fully in place.