Scrutiny of add-on insurance products by consumers, regulators and government has increased recently, with a particular focus on the sale of consumer credit insurance (CCI). Insurers and third-party sellers have been criticised for offering poor-quality products, pressure selling and selling to consumers who were unaware they were consenting to purchase CCI.
In light of these concerns, the Customer Owned Banking Code Compliance Committee conducted an Own Motion Inquiry (inquiry) into the sale of CCI by Customer Owned Banking Code of Practice subscribers. The Committee’s aim was to establish whether and how Code subscribers sell CCI and other add-on insurance products, and to examine their compliance with related Code obligations in particular the obligation to ensure that add-on insurance products are useful, reliable and of value to consumers.
A copy of the report can be downloaded here.
Data for the inquiry was collected via a written questionnaire completed by all Code subscribers as part of the Annual Compliance Statement (ACS) program, as well as a Data Verification Project (DVP) with a selection of 13 Code subscribers who sold a high volume of CCI policies.
The inquiry revealed that the vast majority of Code subscribers sell add-on insurance, focusing almost exclusively on CCI and hybrid CCI products. All subscribers that sell add-on insurance receive a commission, typically around 20% of gross written premium.
While all 13 Code subscribers participating in the DVP reported that consumers are made aware of the cost and term of the CCI through one or more pieces of documentation (such as a PDS), the inquiry found that only a handful said they also discuss these matters with consumers during the sales process. Additionally, very few reported having mechanisms in place to prevent the sale of CCI to consumers who are ineligible to make a claim.
Code subscribers promise that products they sell are useful, reliable and of value to consumers and that they adequately train employees and authorised representatives. They also undertake to have appropriate frameworks in place for monitoring and ensuring compliance with the Code. The findings of the inquiry suggest that not all Code subscribers are complying with the Code’s requirements, particularly in relation to reviewing the usefulness, reliability and value of CCI to consumers and monitoring the sale of add-on insurance products.
To assist Code subscribers, various Code compliance recommendations are included throughout the report, as well as the applicable recommendations from ASIC’s Report 256 on CCI for reference. Compliance with the Code by subscribers in selling CCI will be reviewed by inclusion of relevant questions in the next ACS.