Implementing the Royal Commission recommendations: The deferred sales model for add-on insurance

Consumer Action Law Centre (Consumer Action) and Financial Rights Legal Centre (Financial Rights) broadly support the content of the draft regulatory guide for the industry-wide direct sales model (DSM) and the details provided for add-on insurance. We also broadly support the way the Australian Securities Investment Commission (ASIC)  intends on interpreting the DSM, considering exemption applications and its  proposed  approach towards  customer information.

We believe the implementation of the  DSM will help  reduce the pressure selling of junk  insurance products that has cost consumers billions of dollars over the years.

Our hope is that the ASIC  enforces  the  DSM proactively, in a way that delivers on the intent behind Commissioner Hayne’s recommendation 4.3 in the Final Report of the Financial Services Royal Commission.

However, we encourage ASIC to provide additional guidance on the interaction between the DSM and other regulatory obligations, in order to set clear expectations for retailers and insurers that are aimed at ensuring they act in accordance with the spirit of all the Royal Commission reforms that will come into effect on 5 October 2021.

While  the  implementation  of  the  DSM  will help  reduce  pressure  selling  of  junk  insurance  products,  we  consider that  further action is needed to fully address ongoing mis-selling in car yards.

Since inception in 2016, Consumer Action’s online tool has been used by people to demand over $11.5 million in refunds for junk insurance and  warranties  sold  in  car  yards,  making  car yards clearly  the winners in the list of  prominent sellers of  junk insurance. Even after years of the scrutiny over these junk products, people continued to use to make claims for junk insurance sold to them in 2020.

To that end, we strongly encourage ASIC to reconsider its decision not to use its product intervention power (PIP), which would have introduced a more rigorous and tailored DSM for the sale of consumer credit insurance, guaranteed asset protection insurance and  warranties  in  car  yards.

In addition, the industry-wide  DSM will  not  apply  to  extended warranties, which is a significant gap in protections that the PIP would have addressed.

Read our full submission PDF.



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