ASIC’s recent audit of Australian banks for evidence of product-related sales incentives driving poor employee behaviour highlighted consumer credit insurance (CCI) as the main product for customer complaints and at risk for sale without proper informed customer consent. The audits also identified potential weaknesses in account opening and activation controls, record keeping, and change of address processes in relation to CCI.
As a result of the audit findings and its previous research into add-on insurance products (including CCI) sold through car dealerships ASIC has announced that it has formed a Consumer Credit Insurance (CCI) Working Group consisting of representatives from the banking industry and consumer advocates.
Separately ASIC has announced that QBE Insurance (Australia) Ltd (QBE) will refund more than 35,000 add-on insurance customers up to $15.9 million they paid for QBE Guaranteed Asset Protection (GAP) and Consumer Credit Insurance (CCI) sold through car dealerships across Australia between 2011 and 2017.
GAP insurance covers the car owner for the difference between the amount they owe on the car loan, and the amount the car is insured for under comprehensive car insurance, if the car is written off.
CCI provides some cover to meet the repayments under a consumer’s loan contract if they die, suffer a traumatic illness (such as cancer), or become disabled or unemployed.
ASIC found that the QBE GAP insurance:
- was sold where there was unlikely to be a gap between the insured value of the car and the loan balance, for example because the customer paid a large deposit;
- duplicated existing cover held by consumers;
- provided consumers with more insurance than they needed.
ASIC found that QBE CCI insurance was sold to young people who had no dependents and who were unlikely to need the cover.
In response to ASIC’s concerns, QBE will:
- proactively refund the premium paid by customers who were unlikely to need GAP insurance, especially where they paid a large deposit;
- proactively refund all GAP insurance customers at least one year’s premium because ‘new for old’ cover under their comprehensive motor insurance would have provided similar cover. Consumers can claim a larger refund if their comprehensive cover provided more than one year of ‘new for old’ vehicle replacement;
- partially refund customers who were sold more GAP cover than they needed;
- proactively refund customers under 25 years the cost of the life or trauma insurance element of their CCI premium;
- for customers who paid their loan off early and held both GAP and CCI insurance, partially refund the GAP insurance premium from the date the loan was paid off;
- make a $50,000 payment to Financial Literacy Australia.
Together, these refunds, with interest, will amount to approximately $15.9 million.
CCI Working Group Agenda
The Working Group will consider a deferred-sales model where consumers cannot be sold a CCI policy for their credit card until at least four days after they have applied for their credit card over the phone or in a branch.
The CCI Working Group will determine:
- how a deferred-sales model for CCI sold with credit cards over the phone and in branches will work;
- what measures need to be implemented for CCI sold with credit cards over the Internet;
- other measures to promote good consumer outcomes (including well informed decision making) for CCI sold with credit cards and other loan products; and
- the data necessary to ensure that the success of these reforms can be monitored (such as data on complaints, claims performance and cancellations).
While the proposed deferred-sales model will not apply to CCI sold on-line, or with home loans and personal loans, other measures will be introduced in these areas. The success of these measures will be monitored by ASIC to determine if further reforms are required.
According to ASIC, the banks have committed to strengthening their processes for obtaining express consent from customers who purchase CCI and to provide improved disclosure about the cost and duration of the policy.
The Australian Bankers’ Association (ABA) will incorporate these measures into the revised Code of Banking Practice and will accelerate their introduction so that they commence in the first half of 2018.
You can watch my video on CCI Credit Code issues here.