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 |
$50,000 |
$50,000 |
|
Pay out 3 years into the policy |
$15,000 |
$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?