Submission: Inquiry into credit and financial services targeted at Australians at risk of financial hardship

Reforming the sale of add-on insurance

Seven leading consumer groups commented on The Treasury’s Reforms to the sale of add on insurance: Proposal Paper:

  • Consumer Action Law Centre
  • Financial Rights Legal Centre
  • Consumer Credit Legal Service WA
  • Consumer Credit Law Centre SA
  • WEstjustice
  • Australian Communications Consumer Action Network (ACCAN)

Consumer advocates have held long-standing concerns about the sale of junk add-on insurance and worthless extended warranties in car yards, banks, and retail stores. It is irrefutable that the add-on insurance market is failing consumers, producing significant harm and in dire need of oversight and reform.

While we broadly support the intent of the proposed model and the Government’s swift implementation, we hold serious concerns about elements of the model. Our primary concerns are:

  • The trigger for the deferral period being a ‘financial commitment’: The deferral period must start after the primary good or service has been purchased, financed and delivered to prevent the collection of the good, or signing of the loan contract, being used as a high pressure sale of junk add-ons, which would defeat the very purpose of the reform.
  • The one-day ‘customer initiated’ completion of sale: This is open to abuse by retailers, who can simply pressure people into calling up the next day to get the purported discount or deal. This proposal is particularly risky when combined with the current proposed trigger event of an application for finance because consumers may feel pressured to follow the salesperson’s suggestion in order to secure finance. This proposal creates a huge loophole that is inconsistent with Commissioner Hayne’s recommendation that loopholes be minimised. It should be removed from the final model.
  • The duration of the deferral period: This should be extended to a minimum of seven days, as recommended by the Productivity Commission.
  • Exemptions: Any exemption from the deferred sales model provided by the Australian Securities and Investments Commission (ASIC) should be time-limited and apply at the individual product level, not the product category level. Criteria for exemptions should include: a claims ratio of 90% (consistent with comprehensive car insurance), to ensure the product is good value; and a ban on conflicted remuneration.
  • Tiered design: The three-tier design is overly complex and subject to the limitations of the Product Intervention Power (PIP). We recommend that the deferred sales model apply economy wide, unless modified by a Product Intervention Order

You can read the full submission here [PDF].

You can access Appendix B here [PDF]

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