ASIC is today announcing additional significant refund programs by insurers for the sale of add-on insurance by car dealers, and has now secured a further $14.7 million in remediation by six more insurers. This brings the total amount of compensation to consumers for the sale of car-yard add-on insurance with little or no value to over $130 million.
More than 30,000 additional consumers will be compensated for the sale of these insurance products, bringing the total to over 245,400 consumers.
Under the refund programs announced today:
- Aioi Nissay Dowa Insurance Company Australia Pty Ltd (ADICA) is refunding $7.2 million to 16,596 customers. ADICA sells insurance products under the Toyota brand
- Eric Insurance Limited (formerly AVEA Insurance) will offer refunds of $3.37 million to 5,232 customers
- Sovereign Insurance Australia Pty Ltd has offered refunds of $1.37 million to 1,858 customers
- Virginia Surety Company, Inc. (Virginia Surety) will refund $1.7 million to 4,026 customers
- LFI Group Pty Ltd (insurer for Liberty Finance) has offered refunds of approximately $951,700 to 2,001 customers, and
- NM Insurance Pty Ltd, an underwriting agency, and three insurers - The Hollard Insurance Company Pty Ltd, AAI Limited (a member of the Suncorp Group) and AIG Australia Limited - will collectively refund $143,700 to 287 customers.
Consumers should check their car or motorcycle loan contracts to see if they held add-on insurance with these providers. These refund programs address concerns ASIC identified with Guaranteed Asset Protection (GAP) Insurance, Consumer Credit Insurance (CCI), and Mechanical Breakdown Insurance (also known as Extended Warranty), including sales where:
- customers were unlikely to need GAP insurance, especially where they paid a large deposit for their vehicle
- customers who paid their loan off early did not receive a rebate on their GAP insurance policy, even though cover under the policy had ended
- customers were sold more expensive cover than they needed (overinsurance)
- customers were sold policies they were ineligible to claim on;
- young people were sold life cover under a CCI policy even though they were unlikely to need it, and
- customers were sold mechanical breakdown insurance when cover would start in seven years’ time after the manufacturer’s warranty expired, or where cover would expire shortly as the warranty was sold when the kilometre limit was close to expiring.
ASIC has also worked to secure improvements to the design and sale of add-on insurance products to help prevent unfair sales by car dealerships in future. Some insurers have stopped operating in the add-on insurance market altogether.
ASIC Commissioner Sean Hughes said 'Many people who bought a car or motor bike with add-on insurance may be entitled to a refund. We encourage people to check and contact their insurers.'
'The failures highlighted by these insurers demonstrate why new design and distribution obligations - passed by the Parliament in March 2019 - are so important. ASIC will continue to monitor this sector to make sure the unfair practices of the past do not return; however, the industry has a key role to play in this too.'
ASIC also encourages customers of previously announced refund programs from Allianz, Swann, Suncorp, QBE, Virginia Surety and National Warranty Company to contact their insurer – they can still request their refund to be paid.
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, poor value, and provides consumers 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, and
- Report 492 A market that is failing consumers: The sale of add-on insurance through car dealers.
ASIC sought remediation for consumers as part of its large-scale review of the sale of add-on insurance:
- Virginia Surety to refund over $330,000 to add-on insurance customers (refer: 17-189MR)
- QBE refunds $15.9 million in add-on insurance premiums (refer: 17-258MR)
- Swann Insurance refunds $39 million in add-on insurance premiums (refer: 17-446MR)
- Allianz refunds $45.6 million in add-on insurance premiums (refer: 18-008MR)
- Suncorp refunds $17.2 million in add-on insurance premiums (refer: 18-009MR)
- National Warranty Company refunds $4.9 million for poor car warranty sales incentives (refer: 18-011MR).
As a result of ASIC’s engagement with industry participants, recent changes in the add-on market include:
- Lower commissions paid to dealers – reduced to 20% of the premium from as high as 75%;
- Increased loss ratios, so the value of claims paid compared to premiums paid has increased;
- Improvements to product design;
- The introduction of knock out questions by car dealers to check the customer is eligible under the policy before it can be sold to them; and
- Some insurers ceasing to sell some add-on products, plus four insurance providers exiting the market completely.
ASIC is also undertaking a review of the sale of consumer credit insurance by banks and other lenders and will shortly release a public report.
Types of insurance and refunds
GAP insurance covers the car owner for the difference between the amount they owe on the car loan, and the amount the car is insured for under comprehensive car insurance, if the car is written off.
CCI provides some cover to meet the repayments under a customer's loan contract if they die, suffer a traumatic illness (such as cancer), or become disabled or unemployed.
Mechanical breakdown insurance provides cover for some repairs to a vehicle, once the manufacturer’s new vehicle warranty has expired.
Consumers can find out more details about add-on insurance and the refunds which are payable by visiting ASIC's MoneySmart website. Consumers can also download ASIC's MoneySmart Cars app, which will help them avoid common traps and identify hidden costs when buying a car.
Consumers are advised that Allianz, Swann, Suncorp, QBE, Virginia Surety and National Warranty Company have completed their remediation programs but may not have been able to contact all customers who were entitled to a refund. Consumers should contact their insurer or product issuer. They may have to ultimately seek a refund through Unclaimed Monies.
ASIC’s MoneySmart website has further information on this process