ASIC: car dealers’ add-on insurance is poor value
General insurers and high-commission sales under fire.
A new report suggests Australian car dealers are selling consumers expensive, poor value add-ons that provide little to no benefit.
The Australian Securities and Investments Commission (ASIC) reviewed the sale of add-on general insurance policies through car dealers. Findings from the report show how the market is failing consumers.
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%.
Dealers earned $602 million in commissions, with rates as high as 79%.
Consumers who purchased mechanical breakdown insurance only received 22% of premiums back, while the gap was much higher for tyre and rim insurance, with consumers receiving just 8.6% of their premium. Those with loan termination insurance saw the lowest returns, at just 4.4% of their premium.
The report also revealed that these add-on products were commonly packaged into the consumer's car loan as a single upfront premium.
Research shows consumers are often unaware this has occurred and can miss out on receiving a premium refund if they repay their car loan early.
ASIC said general insurers need to make significant changes to the pricing, design and sale of add-on insurance products or face regulatory action.
Some insurers have already notified ASIC with intentions to implement a 20% cap on commissions and provide regular pricing and claims data.
ASIC will also be investigating how insurers can refund consumers who have been sold inappropriate products.
Check out our car insurance guide for information on the different types of cover available and what to look for when comparing policies.