ACCC opposes cap on car dealer commissions

Peter Terlato 17 February 2017 NEWS

Car dealer vehicle buy insurance add on extras

Insurance companies denied proposed collective cap.

Analysing an investigative government report released late last year, the Australian Competition and Consumer Commission (ACCC) revealed it intends to deny the authorisation of an agreed cap on car dealer commissions involving the sale of add-on insurance.

An Australian Securities & Investments Commission (ASIC) report entitled A market that is failing consumers: The sale of add-on insurance through car dealers was released in September last year, suggesting car dealers were selling expensive, poor value add-ons that offer little to no benefit.

ASIC said these add-on products, such as tyre and rim insurance and loan termination insurance, are sold in pressurised sales environments, attract high commissions and create conflicts of interest.

The report covers a three-year period of review. During this time, consumers paid $1.6 billion in premiums but received only $144 million in successful insurance claims. This represents a claims payout of just 9%.

In contrast, car dealers earned $602 million in commissions, with rates as high as 79%.

Upon review of this report, the ACCC released a draft determination denying 16 insurance companies the ability to agree and implement a 20% cap on add-on insurance commissions paid to car dealers.

The ACCC said consumers are often not well placed to make informed choices when buying add-on insurance products from a car dealer. The consumer watchdog believes a cap on commissions wouldn't remove the incentive for insurers and dealerships to sell consumers costly, unnecessary products.

"While insurers would benefit from a cap at the expense of car dealers, this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors' costs," ACCC chairman Rod Sims said.

"The ACCC is also concerned that these arrangements, if implemented, could significantly delay the development of more effective solutions to the problems that ASIC has identified."

The ACCC is expected to reach its final decision in March 2017.

Check out our car insurance guide for information on the different types of cover available.

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