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Australia: Productivity Commission urges action on add-on insurance products

Source: Asia Insurance Review | Sep 2018

Australia Motor Regulation

The Australian Securities and Investments Commission (ASIC) should proceed as soon as possible with its proposal to mandate a deferred sales model for all sales of add-on insurance by car dealerships, said the Productivity Commission.
In an inquiry report titled ‘Competition in the Australian Financial System’, the Productivity Commission said that the deferral period should be a minimum of seven days from when the consumer applies for or purchases the primary product. 
In addition, the government should establish a Treasury-led working group to extend the deferred sales model comprehensively to all other add-on insurance products, the report says.
Examples of add-on products include consumer credit insurance (sold alongside credit cards and loans), guaranteed asset protection insurance (sold alongside car loans) and lenders mortgage insurance (sold with higher risk home loans). 
The nature and context of the sale can mean that consumers are unable to exercise their normal competitive pressure on prices and quality, the report says. On average, consumers receive back in claims only a small share of what they pay in premiums — about nine cents in every dollar for add-on insurance sold by car dealers and 21 cents in every dollar for consumer credit insurance. This is far below the comparable figures for car insurance (83-98 cents) and home insurance (42-71 cents). 
Poor consumer outcomes in some add-on insurance markets include: Insurers competing for intermediaries (and driving up premiums paid by consumers); policies where claims are less than or similar to the premium paid; policies that have exclusions broad enough to rule out most potential claims; and policies that offer cover that duplicates other already existing protections (such as warranties). But reforms in this area have proceeded at a glacial pace. A 
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