ASIC’s new proposals to rein in dodgy car dealer insurance

Posted: 31 August 2017 1:41 pm
car dealer

car dealer

ASIC is looking for feedback on a strict new series of proposals.

In 2016 the Australian Securities and Investments Commission (ASIC) released a scathing assessment of add-on insurance products sold by car dealerships, finding them to be expensive, of poor value and of very little or no benefit to consumers. It followed up on the initial report by monitoring the insurance industry and car dealership sales practices more closely, relying on insurers to refund customers and working to educate potential buyers.

However, none of these initiatives were intended to be a permanent legislative solution to an industry in need of reform. To that end, ASIC also proposed a cap on car dealership insurance commissions, intended to reduce the incentive for car dealers to sell add-on insurance at all.

However, this proposal was knocked down by the ACCC, which argued that it probably wouldn't help because it didn't actually address the root of the problem, and that it risked putting the entire issue to rest prematurely with a "solution" that didn't really work. According to ASIC, the root causes of the problem include:

  • High-pressure sales tactics. Car dealerships are high-pressure sales environments, which disadvantages the consumer, especially when buying a complicated product like insurance.
  • Conflict of interest. An inherent conflict of interest may arise from the collision of the Australian consumer guarantee and the sale of car insurance. There's a temptation for dealers to sell customers a warranty that they're already entitled to under Australian law.

ASIC is now looking for feedback on a follow-up series of recommendations, designed to offer a more effective long-term solution to these problems.

The new proposals

There have been two new proposals announced by ASIC to help address these root causes.

  • A deferred sales model. A waiting period of between 4 and 30 days after selling a car before an insurer or dealer can sell add-on insurance products for that car.
  • Enhanced supervision obligations for insurers over car dealerships. Car dealerships have been authorised by insurers to resell their policies as they are. ASIC has therefore proposed specific requirements for insurers to supervise and monitor their authorised resellers and to generally be more responsible for who they authorise to resell their policies and how their policies are resold.

In addition to this, ASIC has also proposed that it would like to collect a lot more data from insurers, to help compare add-on car dealership insurance to other typical forms of car insurance to find out how frequently claims are paid for each and to better understand the issues involved.

These proposals would apply to all add-on financial products sold in conjunction with the sale of a new or used car, except for comprehensive car insurance and mandatory CTP insurance.

"Last year we revealed sector-wide failings when it came to the sale of add-on insurance products through car dealerships," said ASIC deputy chair Peter Kell. "This consultation is about strengthening the regulatory framework so that consumers are not pressured into purchasing insurance that they simply do not need or understand. It will also ensure that compliance is not an afterthought, as compliance monitoring and supervision by insurers will be strengthened at the point of sale."

These changes are still only proposals, however, and ASIC is seeking feedback before committing to them. In the meantime, you can implement these changes yourself if you wish. All you have to do is walk (or drive) away if a dealer tries to sell you any insurance add-ons, and consider purchasing insurance by yourself in your own time. Add-on insurance products such as car warranty insurance can be very useful, but you should first take the time to understand all of the terms and conditions and compare the features and prices, as you would with any other insurance product.
Picture: Shutterstock

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