A follow-up inquiry into consumer credit insurance (CCI) has shown that, while customer owned banking institutions have stopped selling add-on CCI, they still have a duty to their customers when it comes to managing loans with active policies and providing referrals to insurance providers.
The independent committee that monitors the Customer Owned Banking Code of Practice (the Code) has released its report on a follow-up inquiry into the sale of CCI by Code subscribers. The report can be accessed here: COBCCC OMI CCI Follow Up Inquiry, June 2021.
CCI is sold with loans to cover inability to make repayments in the event of a loss of job, illness, injury or death. The cost of CCI premiums is usually added to the loan.
Add-on insurance products, particularly CCI, have attracted wide criticism for poor sales practices driven by high commissions, and for providing little value to consumers.
In 2019, the Customer Owned Banking Code Compliance Committee (the Committee) conducted an own motion inquiry into the sale of CCI by Code subscribers complied with the Code, finding that 92% were selling CCI. A follow-up inquiry conducted in late 2020 and early 2021 aimed to determine whether subscribers had implemented the recommendations made in the September 2019 report.
From the information collected via a questionnaire sent with the 2020 Annual Compliance Statement, it became apparent that all Code subscribers had ceased selling CCI. However, most continue to manage loans with CCI policies attached, while a small number provide referrals to CCI providers – in some cases, receiving a commission if the customer takes out a CCI policy.
This changed the nature of the follow-up inquiry. The Committee’s focus instead turned to how Code subscribers manage customer loans with CCI cover attached to them, as well as how those subscribers who provide referrals to CCI providers ensure they manage the process appropriately and in line with their Code obligations.
The report contains the inquiry’s findings – based on analysis of information provided by subscribers – and recommendations subscribers should follow to appropriately manage customer loans with CCI attached to them and when referring customers to third-party CCI providers.
Key findings of the follow up inquiry include:
- The number of loans covered by active CCI policies ranges from four to 70,000. Most Code subscribers noted that active CCI policies will cease sometime within the next five years, once the loans to which they are attached are paid off.
- All Code subscribers monitor complaints to detect any CCI-related issues and 84% provide their staff with training about CCI.
- Only two subscribers have any involvement in handling customer’s claims on CCI policies – for all other subscribers, the insurance provider is responsible for claims handling.
- Almost a quarter of Code subscribers were unable to provide any details about their customers’ active CCI policies, explaining that once the CCI product had been purchased by the customer, responsibility for all queries, claims and complaints relating to the policy fell to the insurance provider.
The inquiry noted that the insurer, not the Code subscriber, is responsible for handling CCI-related claims and the majority of CCI-related complaints.
Even so, the Committee expects Code subscribers to have a working knowledge of the CCI policies attached to their customers’ loans by seeking regular updates from the insurer about the policy status. Analysis of customer complaints or cancellation of CCI cover, provides Code subscribers with an opportunity to investigate whether they sold a CCI product inappropriately. If so, this would indicate a breach of the Code.
The report notes that the Committee also considers it good practice for Code subscribers to proactively remind customers with CCI attached to a loan that they have the policy and may be able to make a claim via the insurer – particularly in instances where the subscriber discovers that the customer may be experiencing financial hardship or is struggling to make their loan repayments.
The inquiry report reminds Code subscribers providing referrals to CCI providers in relation to possible sales of CCI that, although they may not be selling or distributing CCI directly, they are still required under section D13.1 of the Code to ensure that the provider and its products and services are reputable. Code subscribers should familiarise themselves with the insurer’s CCI product to ensure that it will be useful, reliable and of value to their customer before any referral is made.
The Committee urges subscribers to read the report carefully and implement relevant recommendations. It is important that subscribers do not let the fact that they no longer offer CCI prevent them from doing the right thing by those customers still holding active policies.