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Wednesday 17 January 2018

18-008MR Allianz refunds $45.6 million in add-on insurance premiums

Allianz (Allianz Australia Insurance Limited) will refund $45.6 million to 68,000 customers for add-on insurance sold through car dealerships that were of little to no value.

ASIC had a number of concerns about the design and sale of a range of Allianz add-on insurance products sold through car dealerships across Australia between 1 December 2010 and 30 November 2017.

The refund program covers four Allianz add-on insurance products sold between 1 December 2010 and 30 November 2017:

  • Motor Equity Insurance (MEI) – a Guaranteed Asset Protection (GAP) insurance that pays the difference between the amount the customer owes on the car loan, and the amount the car is insured for under comprehensive car insurance, if the car is written off.
  • Loan Protection Insurance (LPI) – a type of Consumer Credit Insurance (CCI) designed to meet some of the repayments under a customer's loan contract if they die, suffer a traumatic illness (such as cancer), or become disabled or unemployed.
  • Tyre and Rim Insurance (TRI) – that meets the cost of repairing or replacing a vehicle’s tyres and rims if they are punctured or suffer a blowout.
  • Warranty Insurance products (Warranties) – that provide cover for some repairs to a vehicle, once any manufacturer’s new vehicle warranty has expired.

The program by Allianz addresses ASIC's concerns with sales of the products where:

  • It was unlikely customers would be able to claim on their MEI policy because the insured value of the car was more than the car loan (for example, because the customer paid a large deposit).
  • The customer was unable to claim a payment under the MEI policy where their car was written off and they received a replacement vehicle from their comprehensive insurer.
  • Customers did not receive rebates under their MEI policy when they paid out their loan early (which meant that their cover under the MEI policy had stopped).
  • Customers were over-insured because they were sold a higher and more expensive level of cover than needed.
  • Customers were sold a policy they would be ineligible to make a claim on.
  • Life cover (under LPI) was sold to young people who were unlikely to need it.
  • Customers were sold Warranties that they were unlikely to need because it would be seven years before they could make a claim (as the car had a manufacturer's warranty for that period).

Allianz will:

  • offer to refund premiums paid by customers for policies with little or no value (for example, where the customer would have been unable to claim on their policy).
  • offer a partial refund to customers sold more cover than they needed.
  • offer a partial refund to customers with MEI who also held Allianz comprehensive car insurance on a new car.
  • for customers who paid their loan off early, provide a rebate on the MEI premium from the date the loan was paid off.

Interest will be paid on these amounts (other than the rebates).

Allianz will also make a community benefit payment of $175,000 to a financial literacy organisation.

Acting ASIC Chair Peter Kell said: 'The refunds offered by Allianz, together with those from other insurers, make up one of the largest compensation programs achieved by ASIC, with over $120 million in refunds to consumers as a result of ASIC shining a spotlight on these poor consumer outcomes'

'Our message to insurers is simple: the needs of your customers must come first in the design, price and sale of your products.'

Allianz is expected to write to all affected customers about their refund offer by April 2018, as it is still confirming identity and contact details before it can start making payments. Customers with questions about their cover should contact Allianz via phone on: 1300 548 165, or by email:  

ASIC acknowledges Allianz' cooperation in this matter.


ASIC identified the issues with the Allianz add-on insurance products as part of its ongoing review of the sale of add-on insurance through car yards that has resulted in refunds of over $120 million:

  • Suncorp refunds $17.2 million in add-on insurance premiums (refer: 18-009MR)
  • Swann Insurance refunds $39 million in add-on insurance premiums (refer: 17-446MR)
  • QBE refunds $15.9 million in add-on insurance premiums (refer: 17-258MR)
  • Virginia Surety to refund over $330,000 to add-on insurance customers (refer: 17-189MR)               

In 2016, ASIC released three reports covering its review of the sale of add-on insurance through car dealers, which found that the insurance is expensive, of poor value and provides consumers very little or no benefit:

  • Report 470 Buying add-on insurance in car yards: Why it can be hard to say no.
  • Report 471 The sale of life insurance through car dealers: Taking consumers for a ride.
  • Report 492 A market that is failing consumers: The sale of add-on insurance through car dealers.

ASIC is working with insurers to see that improvements are made in the sale and design of add-on insurance products.  It has also consulted on the introduction of a deferred sales model to introduce a pause in the sales process (refer: 17-280MR).

Consumers can find out more information about the Allianz refund program by visiting ASIC's MoneySmart website. MoneySmart also has information about add-on 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.