Consumer Action says the Australian Securities and Investment Commission’s (ASIC) proposal to use its product intervention powers (PIP) for add-on insurance and warranties sold by caryards lacks teeth needed to protect Australians from worthless ‘junk insurance’. This comes as Consumer Action releases new data from DemandaRefund.com showing the scale of mis-selling.
ASIC’s proposed use of the PIP would introduce a four-day deferred sales model to the sale of add-on insurance products and warranties sold with finance for motor vehicles by car dealers, finance brokers and salary packaging firms. This deferral would commence from the customer’s application for vehicle finance.
“We strongly support ASIC intervening in sale of insurance by car dealers,” says Consumer Action CEO Gerard Brody. “But the proposed deferred sales model won’t go far enough toward protecting Australians.”
“Put plainly, add-on insurance sold in caryards is junk,” he says. “Our Centre has helped people claim more than $5m refunds for junk add-on insurance. People are often pressured into getting these insurance policies, convinced that it will increase their chances of getting approved for finance.”
New data on consumer credit insurance from Consumer Action’s popular DemandARefund.com tool shows an estimated:
- 97% of users did not think that the salesperson had explained all the important exclusions and limitations;
- 52% felt pressured by the salesperson into buying the insurance;
- 88% did not think that the sales process was fair;
- 39% didn’t even know they had bought the insurance; and
- most damning of all, not a single person responded that they would have bought the insurance knowing what they know now.
“Unfortunately, the sale of junk insurance is a lucrative business for caryards, whose sales personnel are motivated by eye-watering commissions for each policy sold.”
Consumer Action is calling for a 30-day deferral period to apply to add-on insurance. In the case of caryard finance, this period should start from when the vehicle is delivered to the customer and after any finance is approved.
Brody says that the finance process must be clearly separated from the add-on insurance sales process. “A four-day deferral period from the point of applying for vehicle finance is not sufficient to separate the two processes. This does not give the customer adequate time to consider the suitability of the insurance for their needs and financial situation, away from the high-pressure sales environment.
“It also gives the salesperson a glowing opportunity to pressure-sell add-on insurance when the customer picks up their vehicle, thus defeating the very purpose of this reform, recommended by Commissioner Hayne. Car dealers cannot be trusted to sell insurance.”
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