Refunds by insurers as a result of mis-selling of products or misleading advertising

ASIC has ended 2017 with a series of announcements about refunds by insurers as a result of mis-selling of products or misleading advertising. The insurers are Comminsure, Latitude Insurance and Swann Insurance.

ASIC says CommInsure will pay $300,000 to the Insurance Law Service in the form of a Community Benefit Payment and have its advertising sign-off processes independently reviewed after ASIC raised concerns about CommInsure’s advertising of two life insurance policies:

  • Total Care Plan, sold through financial advisers;
  • Simple Life Insurance, sold directly to consumers

ASIC reviewed advertising from mid-2013 to March 2016 and found that misleading and deceptive statements are likely to have been made on some of CommInsure’s websites about the extent to which customers would be entitled to cover for trauma if they suffered a heart attack.

In addition CommInsure has paid 32 customers around $4 million after reviews of claims against the updated CommInsure’s policy definition of a heart attack

ASIC said the statements may have led a policyholder to believe they would be entitled to a lump sum payment if they suffered a heart attack in general, when in fact only certain types of heart attacks, which met certain medical criteria as defined in the policy, were covered.

In response to ASIC’s concerns, CommInsure will commission an external firm to conduct a compliance review of its advertising sign-off processes and procedures. The review will look at whether CommInsure’s processes and procedures ensure compliance with the ASIC Act, and make recommendations to improve compliance if required.

ASIC has announced that Hallmark General Insurance Company Ltd (trading as Latitude Insurance) will provide refunds of approximately $1.1 million to 905 customers after it mis-sold consumer credit insurance (CCI) with Latitude personal loans and incorrectly denied claims on CCI policies sold with Latitude and other credit cards.

Latitude Insurance identified and reported to ASIC that between October 2011 and June 2014, it sold involuntary unemployment insurance to personal loan customers who were ineligible to claim because they did not work the required minimum 20 hours per week.

It also identified that between May 2014 and February 2017, its new partly automated claims assessment process had incorrectly denied claims to credit card CCI customers, because it failed to properly apply the exclusion definition of ‘casual employment.’

Latitude Insurance will:

  • refund premiums and interest to personal loan involuntary unemployment insurance customers who were ineligible to claim. Customers also have the option to retain their policy and will not be subject to the minimum working hours condition for past or future claims.
  • pay claim amounts and interest to credit card CCI customers that had incorrectly denied claims.

ASIC has announced that Swann Insurance will offer to refund 67,960 customers $39 million (including interest) paid for add-on insurance products bought through car and motorbike dealerships that were of low or no value.

The refund program covers six different add-on insurance products sold by Swann that:

  • made payments towards the customer’s loan (the Loan Protection Insurance (LPI) Walkaway and Gapcover products);
  • made payments if the consumer’s car was damaged (Purchase Price Protection Insurance, Tyre & Rim Insurance (TRI) and Mechanical Breakdown Insurance (MBI)).

The program includes refunds where:

  • it was unlikely that the customer would be able to claim on the insurance as the insured value of the car was more than the amount borrowed (for example, because the customer paid a large deposit);
  • the cover under the Gapcover policy was unnecessary as it duplicated existing cover held by customers, including under their comprehensive insurance policies;
  • customers were sold a more expensive level of cover than they needed;
  • customers did not receive rebates under their Gapcover policies when they paid out their loan early, even though cover under those policies had ended;
  • customers were sold MBI for a longer period than they needed (for example, because the car was close to the kilometre limit at which cover would expire when the policy was sold);
  • customers paid twice for roadside assistance, as they were sold this option under two different policies that were in force at the same time; and
  • life insurance cover was sold to young people who were unlikely to need it.

In response to ASIC’s concerns, Swann will offer to:

  • refund the premium paid by customers who claimed on their Swann comprehensive car insurance and obtained a replacement vehicle;
  • partially refund customers who were sold more cover than they needed;
  • refund the premium paid by customers for policies with little or negative value; and
  • for customers who paid their loan off early, partially refund the insurance premium from the date the loan was paid off.
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