1st Mar 2016
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Car dealers are charging up to 18 times more for life insurance

Last week the Australian Securities & Investments Commission (ASIC) released two reports about the sale of add-on/life insurance products through car dealers. The reports found that life insurance sold through car dealers is normally much more expensive than comparable products sold elsewhere. The reports also showed that the policies provided the consumer with much lower claim payouts relative to the premiums and that car dealers are paid high commissions by insurers on the sales.

Key findings of the two reports included:

  • life insurance purchased through a car dealer can be up to 18 times more expensive than a life insurance policy with more cover, purchased directly from an insurer
  • consumers found it difficult to say no to the offer of add-on insurance, having already invested large amounts of time, money and mental effort when buying the car
  • one in ten life insurance policies were sold to 18 to 21-year-olds who are considered unlikely to need the insurance
  • Consumers had a low level of awareness of the product they were purchasing and its features.

Features of the insurance

Car yard life insurance

Standard life insurance

Life insurance through super

 How is it bought?

Car yard (with a car loan)

Calling a life insurance company

Through a super fund

 Total premium over four  years

$1355

$240

$80*

 Pay out 2 years into the policy

$28,000
(the amount owing on the car loan)

$50,000

$50,000

 Pay out 3 years into the policy

$15,000
(the amount owing on the car loan)

$50,000

$50,000

* Calculated using a superannuation insurance calculator of a large public offer fund.

In the wake of the reports, ASIC has already spoken to some industry participants, with some insurers committing to review the offer of life insurance products sold through car dealers.

"The message to [the] industry is clear: substantial improvements need to be made to both the design and distribution of these products. Insurers must address the high costs, poor value and poor claim outcomes of their add-on products, especially when the very same insurers provide alternative products that offer cheaper and more comprehensive cover." said ASIC Deputy Chair Peter Kell.

Read more from www.asic.gov.au
Read more from www.moneysmart.com.au

Opinion: Tougher regulations required

The insurance industry needs to be held accountable for the backroom deals that have been done to allow car dealers to push unnecessary products with exorbitant mark-ups. While the car dealers come out of these reports as the big bad wolf, it’s the insurers that made these practices possible, by creating and approving the sale of these policies, who also needs to be held accountable.  

Mr Kell made it clear yesterday that ASIC were keen to identify the insurers involved in offering these products and having the policies removed from the market. 'If substantial and meaningful changes are not made we will need to take further action. ASIC will consider the full range of regulatory options available, including enforcement action.' he said.

As the old saying goes, if you give them an inch they’ll take a mile. It’s clear from the ASIC reports that the current regulations don’t go far enough to ensure consumers are protected. More needs to be done to hold insurers and those offering policies, in this case car dealers, accountable for providing the right product for the consumer.

What do you think? Do you know enough about what your current policies cover and if you are getting the best deal? Should ASIC be naming and shaming the insurers offering these unfair policies through car dealers? 





    COMMENTS

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    MICK
    1st Mar 2016
    11:59am
    So ASIC has actually made a public comment? That's history. But expect little more than 'talk'. That's about all you ever get from ASIC and the ACCC. Rarely do they actually do their (regulator) job. In fact more of an employment club with cushy jobs than anything else.
    KSS
    1st Mar 2016
    1:34pm
    I don't see why this is a problem. The insurance companies have developed a product and found a distribution channel for it The car yard is simply up-selling: "so you want this car... how about metallic paint? Reversing camera, roof-rack? Loan? Life insurance???"

    It seems that the over 21s are more stupid than the under 21s with 90% of these policies sold to the older age groups. When are people going to take some responsibility for the decisions they make? Given that for years there have been warnings even about getting car financing from a car yard, why would anyone think it is a good idea to get life insurance there too? We complain about Australia being a 'Nanny State' and yet clearly people expect the Government to protect us from ourselves.

    This is just an add on product, you buy it or you don't. But if you do then don't complain later when you finally do the research you should have done in the first place.
    Scrivener
    1st Mar 2016
    2:05pm
    Assuming the terms mean and average are synonymous then we have to assume half the population have and IQ below average. They vote based on impressions and buy cars and Insurance the same way. But don't be too hard on them, they have to live with us!
    Anonymous
    1st Mar 2016
    4:31pm
    Low I Qs I think you are right Scrivener think half the population vote Labour


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