Death knell for car insurance cap

Richard Laycock 9 March 2017 NEWS

Young couple at sales desk being handed key to new car

The ACCC has denied insurance companies' bid for a jointly set add-on insurance commission cap.

The Australian Competition and Consumer Commission (ACCC) has rung the death knell for an intended cap on commissions earned on add-on insurance products.

The ACCC issued its final determination, denying the bid by 16 insurance companies that wanted to set a 20% cap on commissions paid to car dealers who sold add-on insurance products to car buyers.

In February 2017, the ACCC published a draft determination of why it planned to deny the authorisation of the cap. This draft was created to provide insurers with time to respond to the ACCC's concerns. However, the insurers did not submit a response to the draft determination.

“The ACCC is denying authorisation because we believe this proposal is unlikely to change sales incentives or the quality of products, and consumers will still be sold products without being given adequate information or opportunity to make a considered decision,” ACCC Chairman Rod Sims said.

Also of concern to the ACCC was that the cap would lessen competition between insurers.

“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.”

Add-on insurance, which are products sold to customers by car dealers when they buy a car, covers a range of eventualities. These products can cover you from consumer credit insurance to trauma insurance to comprehensive car insurance for the car. An ASIC report, A market that is failing consumers: The sale of add-on insurance through car dealers, identified a range of issues with these add-on products including poor design and poor value for money.

If you're in the market for a new car or looking for car insurance, make sure you compare your options to make sure you're getting value for money.

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