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Wednesday 19 October 2011

11–224MR ASIC seeks improvement in CCI sales practices

There are significant improvements that can be made to the practices of banks, credit unions and building societies that offer consumer credit insurance (CCI) to reduce the risk the product may be mis-sold, an ASIC review has found.

The review has prompted ASIC to issue 10 recommendations to improve the way in which CCI is sold. The recommendations cover the areas of sales practices, disclosure, training programs and monitoring systems.

The 15 authorised deposit-taking institutions (ADIs) ASIC reviewed, which included banks, credit unions and building societies, have all agreed to implement the relevant recommendations and many have already made the necessary changes to their practices and processes (including those against which ASIC had previously taken compliance action).

ASIC’s Report 256 Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions (REP 256) looked at data provided by the 15 ADIs that distributed CCI in conjunction with home loans, personal loans and credit cards in the period from 1 January 2009 to 31 December 2009.

The review followed compliance action that ASIC had taken against three companies that mis-sold CCI. In light of these specific investigations ASIC wanted to assess how CCI is sold across the industry more broadly.

‘Our review revealed that some practices give rise to poor outcomes for consumers,’ ASIC Commissioner, Peter Boxall, said.

In its review of sales practices ASIC identified the following risks:

  • consumers not being made aware that they have purchased CCI or that CCI is optional
  • consumers not being asked whether or not they wish to purchase CCI
  • consumers not being eligible to claim on all components of the CCI policy they have purchased
  • the potential for consumers to be pressured or harassed by sales staff, and
  • consumers not understanding the cost or the duration of the CCI policy.

‘For consumers, the key message is that CCI is optional,’ Dr Boxall said. ‘If a consumer is offered CCI they should consider whether or not they need it by asking key questions including ‘what would I be able to claim for’ and ‘what would the policy cost’.

‘Consumers should be aware that CCI usually only covers some repayments on the insured debt. They should consider whether or not they already have insurance that would cover them in the same circumstances.’

Dr Boxall said ASIC has made the recommendations to improve the way in which CCI is sold in Australia so consumers are better informed and more confident in deciding whether or not to purchase CCI.

‘ASIC’s review focused on ADIs, but where appropriate the recommendations would also apply to non-ADI distributors of CCI,’ Dr Boxall said.

For the ADIs reviewed by ASIC, an average of 15.9% of claims were denied – a relatively high proportion. ASIC plans therefore to conduct a further review of claims handling and insurer practices for CCI, and industry has indicated support for the second stage of the review. Indeed, the Financial Services Council has committed to produce guidance for life insurers that issue CCI, based on any relevant recommendations arising from both stages of the review.


CCI is designed to protect consumers if something happens to them that affects their ability to meet their credit repayments. Typically, CCI covers consumers in the event of: death; permanent disablement; or loss of income due to injury, illness or involuntary unemployment.

The data ASIC obtained from the 15 ADIs reviewed showed that - in this segment of the market, at least – 661,902 CCI policies were sold. Of these policies, 52.7% were sold with credit cards, 36.1% were sold with personal loans and 11.2% were sold with home loans.

The overall conversion rate for CCI policies sold by the 15 ADIs was 19.4% (i.e. 19.4% of consumers who purchased home loans, personal loans or credit cards from these ADIs also purchased CCI).

Download Report 256 Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions

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Last updated: 17/10/2011 12:00