Car insurance add-ons sold at the car-yard could become a thing of the past
Car-yards are under the microscope for their dodgy insurance selling practices.
Less than three weeks after stifling the life insurance industry's abilities to sell junk policies, financial regulators have begun hearings to determine if similar practices need to be quashed in the car insurance industry.
The Banking Royal Commission questioned executives from Swann Insurance, a subsidiary of Insurance Australia Group (IAG) and found that a major source of revenue for the company was the sale of junk car insurance add-ons. The policies were pushed onto drivers via dealerships and earned Swann $1.07 billion dollars over 10 years. They paid out next to nothing to consumers.
The add-ons aren't standard car insurance policies, but supplementary policies that only have limited value, and even then only for certain customers. Examples include insurance for tyres and rims, gap insurance (which in many cases was redundant if they already had comprehensive car insurance) and even life insurance.
The Australian Securities and Investments Commission (ASIC) has been keeping tabs on the sale of add-ons for several years and has already ordered Swann and four other companies to pay back more than $118 million to affected buyers.
The regulator was hoping the penalties would be enough to discourage the practice (Swann stopped offering add-ons via dealerships in 2017), but so far there are no laws preventing it. But that may change as more information comes out as part of these hearings.
Customers who want to avoid leaving a car-yard with a bagful of useless policies need to exercise caution. Your best bet is to not purchase any of these policies at the car-yard at all, even if they seem legitimate. Buying a car can be stressful enough, so you probably won't be in the right mindset to make any additional purchases. The policy will still be there later if you need it, plus you'll have time to compare it against similar policies for a better deal.
Also keep in mind that you are under no obligation to purchase one of these add-ons to secure a loan, so don't let the dealer tell you otherwise.