News Non-Life15 Mar 2018

Australia:Animated debate over deferred sales model for car-yard insurance

15 Mar 2018

Financial advisers, brokers and some motor dealers are opposing plans by the corporate regulator for a deferred sales model for controversial "car-yard" insurance.

Opponents of the plan say that the Australian Securities and Investments Commission (ASIC) proposal, which would require companies to wait four days, but no longer than 30 days, before suggesting add-on insurance products when a car is sold, fails to address the root of the problem – which is insurance companies issuing poor products, reports The Australian Financial Review.

Mr Peter Kell, ASIC acting chairman, said at a recent insurance forum last week that the Commission's ongoing review of add-on insurance sold with cars had "demonstrated the risks for insurers not placing consumers at the centre of product design and distribution".

As part of its response, ASIC has forced insurers to remediate consumers to the tune of A$120 million (US$95 million), but it has also proposed the development of a deferred sales period for insurance sold when people purchases both new and used cars.

The Association of Financial Advisers said the the introduction of a deferred sales model "is not sufficient to address and resolve the issues in the market", noting it was "deeply concerned" by ASIC's findings.

"The preferred outcome is that consumers seek advice that is in their best interests when they seek life insurance and that this advice is based on the best products in the overall market," said the AFA.

Separately, in its submission the Phil Gilbert Motor Group said a formal deferred sales model was "not required", adding that it would "create confusion and increase the likelihood of consumers leaving a dealership uninsured".

The Australian Finance Industry Association, advocate for motor vehicle financiers in Australia, and the Finance Brokers Association of Australia were united in their view that underlying issues of "poor" product value and a sales-driven culture would not be fixed by a deferred-sales period.

The AFIA said it was of "limited value and is potentially inefficient", while the FBAA said it could leave consumers exposed to "unmitigated risk".

A 2016 review by ASIC found car dealers were paid A$602.3 million in commissions for which consumers received only A$144 million in successful claims. This compares with A$1.6 billion in premiums paid. Some commissions were as high as 79% of the premiums paid by consumers.

The Insurance Council of Australia stood by the practice of selling insurance at the point of sale, saying it was convenient, but agreed that a deferred sales model (DSM) could "complement" other initiatives.

"A DSM should not result in an overly rigid sales process that unreasonably restrains consumer preferences and choice. There should be an appropriate opt-out mechanism for consumers," said the ICA.

Mr Kell notes that banks had committed to a deferred-sales model for insurance add-ons sold with credit cards over the phone and in branches. "Insurers should move to implement similar changes … not doing so could be interpreted as a failure by the industry to apply lessons more broadly," he said.


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