Virginia Surety Company, Inc. (Virginia Surety), a general insurer, will refund over $330,000 in insurance premiums to more than 500 customers. It will also have a condition imposed on its Australian financial services licence, for improperly selling consumer credit insurance policies.

Between 18 June 2013 and 31 December 2015, Virginia Surety sold consumer credit insurance (a bundled add-on insurance product which includes general and life insurance cover), to customers taking out loans at car yards mainly in Queensland and New South Wales.

ASIC found that Virginia Surety had stated that the life cover in the add-on insurance policies was underwritten by TAL Life Limited (TAL), without TAL's permission. This meant there was a risk that consumers would have a life claim rejected, even though they paid for the policy.  

As a result, ASIC has placed a condition on Virginia Surety's Australian financial services licence, so they have to:

• Refund the life premium paid by affected customers plus interest
• Engage an independent external compliance expert approved by ASIC, to review its compliance practices and report to ASIC

"Customers should be confident that when they purchase an insurance policy, that they can claim when they need to," ASIC Deputy Chair Peter Kell said.

"The fact that Virginia Surety was selling this insurance without the life insurer's approval, indicates serious deficiencies with its compliance."

"We have put all insurers in this market on notice that they need to change their practices and ensure they are properly considering the interests of consumers."

Where a consumer has a valid claim under an affected add-on insurance policy, TAL has agreed to honour the life cover and pay the claim, even though the customer will receive a refund from Virginia Surety.

Virginia Surety will contact affected consumers who are eligible for a refund. Customers who have questions about their policies should contact Virginia Surety on: 1300 131 306 or by email at: compliance.au@thewarrantygroup.com

Background

Virginia Surety  issues general insurance, and sells consumer credit insurance in Australia through The Warranty Group Australasia Pty Ltd.

Add-on insurance is a term used to describe an insurance product that is 'added-on' to the sale of another product (in this case a car).  

The consumer credit insurance, sold by Virginia Surety to customers taking out car loans, was promoted to cover the risk of the borrower being unable to make their repayments, due to sickness, injury, disability, death or unemployment of the borrower.

The matter was identified during ASIC’s review of add-on insurance sold through car dealers. For more information on that review see: ASIC Report 492 - A market that is failing consumers: The sale of add-on insurance through car dealers, which was released on 12 September 2016. Download here.

ASIC has worked with the Australian Prudential Regulation Authority (APRA) during this review and ASIC and APRA will work closely on the monitoring of the external compliance review.

ASIC's MoneySmart website has information about add-on insurance  and consumer credit insurance to help consumers work out if they'll benefit from these products. Consumers can also download ASIC's MoneySmart Cars app, which will help them avoid common traps and identify hidden costs when buying a car.