The Australian Securities and Investments Commission (ASIC) has found that consumers are paying up to 18 times more for life insurance when purchased through a car dealer and have called for insurers to improve consumer outcomes in this area.
The corporate regulator released two reports into add-on insurance products sold to consumers when purchasing cars finding the products were expensive, of poor value and sold in a confusing manner.
According to ASIC, life insurance sold by car dealers is part of a consumer credit insurance (CCI) policy which covers the risk of a consumer’s inability to make loan repayments due to a serious accident or illness, unemployment or death.
However, in Report 471: The sale of life insurance through car dealers: Taking consumers for a ride, ASIC found life insurance sold through car dealers was often more expensive than comparable life insurance cover and provided low claim payouts relative to premiums.
In compiling the report ASIC looked at five major insurers who offered 90% of product in this market and found that apart from the high premium costs that people purchasing a car for a small business were being charged 80% more for the same life insurance cover as a consumer with a personal car loan, they should have done more research, then they would have found out that installment loans can be a great
ASIC also found consumers were paying higher costs on the premiums as the insurance was sold through car dealers as single upfront premium for a multi-year insurance policy with the cost of the premium added to the car loan. As a result, consumers were paying interest on top of the premium which was not returned if they repaid the car loan early.
“Insurers must address the high costs, poor value and poor claim outcomes of their add-on products…”
ASIC also stated there was a low level of awareness of the add-on insurance product and its features with Report 470: Buying add-on insurance in car yards: Why it can be hard to say no stating that many consumers who purchased add-on insurance products were not aware of this type of insurance or its value before purchasing a car.
At the same time consumers stated that since they had invested significant time and effort on the car purchase when they were offered the insurance it was hard to decline the offer as it provided peace of mind, but few consumers could recall what they had purchased, its costs and the level of cover provided.
ASIC Deputy Chair Peter Kell said substantial improvements needed to be made to the design and distribution of these products.
“Insurers must address the high costs, poor value and poor claim outcomes of their add-on products, especially when the very same insurers provide alternative products that offer cheaper and more comprehensive cover,” Kell said.
ASIC said some insurers were reviewing their product designs while others were reviewing the offer of life insurance products through car dealers with Kell stating ASIC would use enforcement action if substantial changes were not made by insurers.
Qld Adviser Permanently Removed From Industry
The corporate regulator has also permanently removed a Queensland adviser from the financial services industry after it found he did not act in the best interest of his clients.
ASIC accepted an enforceable undertaking (EU) from Rankothge Bandula Jayaweera which prevents him from providing financial product advice to any retail client.
The action follows a review of advice provided by Jayaweera and was brought to the attention of ASIC after it was notified by the Financial Ombudsman Service of the non-payment of a determination relating to advice provided by Jayaweera.
At the time of the non-payment Jayaweera was a director and authorised representative of Growth Plus Financial Group Pty Ltd in Brisbane, Queensland.
ASIC stated Jayaweera recommended that clients invest in an unregistered aqua agriculture investment scheme, operated by Growth Plus, without reasonably considering the clients’ goals and financial situation.
ASIC also stated the recommended investments were not consistent with the clients’ risk profile and exposed the clients’ superannuation benefits to inappropriate levels of risk.
Under the EU, Jayaweera will permanently cease to provide financial product advice to retail clients and will not be involved in any capacity in the provision of financial product advice to retail clients.
Bloody hell-where have ASIC been. Only just learnt about it.! Give me a break. Similarly, they apparently have only just discovered that Unit Plan Service Managers have been paid commission without declaration for GI contracts on the building And were the car dealers required to do an SOA and disclose commission and incentives. These are the same folks who apparently insist horse racing syndicates must be licenced – now there’s a real investment
Don’t stop now get stuck into the others the direct insurers who offer such inferior products with no reasoning as to how they will serve the consumer
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