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17-255MR Banks to overhaul consumer credit insurance sales processes
ASIC has brought together representatives from the banking industry and consumer advocates to improve outcomes for consumer credit insurance, with the establishment of a Consumer Credit Insurance (CCI) Working Group.
The CCI Working Group will progress a range of reforms, including a deferred-sales model for CCI sold with credit cards over the phone and in branches.
CCI is a type of add-on insurance sold with credit cards, personal loans, home loans and car loans. It is promoted to borrowers to help them meet their repayments if they lose their job, become sick or injured, or die. However, CCI has long been associated with poor consumer outcomes in Australia and overseas, including consumers being unaware that they have purchased CCI and consumers being ineligible to make a claim on their CCI policy. Compared with other common insurance products (such as car and home insurance), consumers can receive very little back in claims compared to what they pay in CCI premiums.
The establishment of the CCI Working Group comes off the back of extensive work by ASIC in relation to CCI, including audits of eight Australian banks following systemic illegal conduct in the United States by Wells Fargo Bank, N.A. (refer: 17-254MR), and our work in relation to add-on insurance products (including CCI) sold through car dealerships.
Following discussions with ASIC, the banks have now committed to a range of measures to improve consumer outcomes in relation to CCI. Significantly, this includes a deferred-sales model for CCI sold with credit cards over the phone and in branches. This will mean that consumers cannot be sold a CCI policy for their credit card until at least four days after they have applied for their credit card over the phone or in a branch. This reduces the risk that a consumer will feel pressured to purchase the CCI product, or purchases a CCI product that does not meet their needs.
In addition, the CCI Working Group will identify improvements that will be made to banks’ sales practices for CCI on credit cards sold online, and with other loan products in all sales channels. For example, the banks have committed to strengthening their processes for obtaining express consent from customers who purchase CCI and to provide improved disclosure about the cost and duration of the policy.
ASIC welcomes these steps to improve consumer outcomes and ensure that consumers are able to make an informed decision when being offered CCI. ASIC will monitor the effectiveness of the changes to assess if further reforms are required, including through metrics that indicate the value being provided to consumers by CCI products .
The Australian Bankers' Association (ABA) will incorporate these measures into the revised Code of Banking Practice and will accelerate their introduction so that they commence in the first half of 2018 and well before the new code is fully in place.
'Consumers should be confident that when they sign up for consumer credit insurance, they know what it is and that it suits their needs,' ASIC Deputy Chair Peter Kell said.
'We welcome industry's commitment to improve their sales practices and look forward to working with industry and consumer advocates on these initiatives.'
In addition to our work on add-on insurance (including CCI) sold through car dealerships, ASIC has commenced surveillances into past CCI practices by banks.
'Our last major consumer credit insurance review in 2011 put forward a range of recommendations in relation to disclosure, staff training and compliance monitoring,' Mr Kell said.
'We will examine how the banks addressed those recommendations as well as if further changes are needed to ensure better outcomes for consumers. If we find instances of mis-selling, we will take further action.'
The CCI Working Group includes representatives from ASIC, the ABA, banks and consumer advocacy groups.
The CCI Working Group met for the first time on 27 July 2017 and is tasked with determining:
- how a deferred-sales model for CCI sold with credit cards over the phone and in branches will work
- what measures need to be implemented for CCI sold with credit cards over the Internet
- other measures to promote good consumer outcomes (including well informed decision making) for CCI sold with credit cards and other loan products; and
- the data necessary to ensure that the success of these reforms can be monitored (such as data on complaints, claims performance and cancellations).
A deferred-sales model is where the sale of the add-on insurance is separated (usually by at least a few days) from the sale of the underlying credit product (such as a credit card or car loan).
CCI sold with credit cards accounts for the majority of CCI sales by banks. While the forthcoming deferred-sales model will not apply to CCI sold on-line, or with home loans and personal loans, other measures will be introduced to promote good consumer outcomes in these areas. Importantly, the success of these measures will be monitored by ASIC to determine if further reforms are required.
In 2016, ASIC released three reports covering its review of the sale of add-on insurance through car dealerships, which found that the insurance is expensive, of poor value and provides consumers very little or no benefit (REP 470, REP 471, REP 492). ASIC will shortly release a consultation paper to consult on proposals in relation to add-on insurance products sold through car dealerships, including a deferred-sales model for this channel.
In October 2011, ASIC issued Report 256 Consumer credit insurance: A review of sales practices by authorised deposit taking institutions (REP 256 ) which included a number of recommendations by ASIC, after the review found a number of deficiencies in the areas of sales practices, disclosure, training programs and monitoring.
ASIC's MoneySmart website has information on consumer credit insurance for consumers.