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19-267MR ASIC consults on reforms to sale of add-on financial products sold with cars
ASIC has released a consultation paper on a proposal to use its product intervention power to reform the sale of add-on financial products by car yards.
ASIC is taking this action to address ongoing concerns about consumer harms from the sale of add-on insurance and warranty products by car yards.
Consultation Paper 324 Product intervention: The sale of add-on financial products through caryard intermediaries (CP 324) seeks views on the following proposals:
- Introducing a deferred sales model—applying a deferred sales model to sales of add-on insurance products and warranties by caryards, other than comprehensive or compulsory third party (CTP) insurance, and manufacturers’ warranties provided with new cars. This would apply to all sales where finance is arranged for motor vehicles, including by car dealers, finance brokers and salary packaging firms.
- Complementing the deferred sales model with additional obligations—this would include other requirements such as:
- the use of ‘knock out’ questions to prohibit sales where the product has low or no value; and
- prohibiting the sale of warranties that provide low levels of cover (where the maximum amount that can be claimed is $2000 or less).
- Monitoring the impact of these proposals—If we make an intervention order we propose to collect data from insurers and warranty providers, so that we can monitor whether the interventions are operating as intended.
The product intervention power allows ASIC to intervene where financial products have resulted in or are likely to result in, significant consumer detriment. It allows ASIC to directly confront, and respond to, business models that cause, or create a risk of consumer detriment, in the financial sector.
Announcing the consultation ASIC Commissioner Sean Hughes said, ‘There has been a history of unfair conduct and poor results for consumers in the add-on insurance market. We have seen policies sold to consumers when they have been ineligible to claim under them. ASIC has secured over $130 million in refunds to compensate consumers for their losses from these practices.
As well as compensation for past conduct we are proposing changes to improve consumer outcomes in the future. We welcome submissions from all interested parties.’
ASIC seeks the public’s input on the proposed intervention order by Tuesday 12 November 2019. Submissions should be sent to: firstname.lastname@example.org.
ASIC’s work complements the concurrent consultation by the Commonwealth Treasury: see Reforms to the sale of add-on insurance products.
All intervention orders made must be published on ASIC’s website, and a public notice is to be issued in relation to the intervention.
On 4 April 2019 ASIC published a media release welcoming new laws to protect financial service consumers.
In 2016 ASIC released three reports into the design, distribution and sale of add-on insurance products sold through car dealerships:
- Report 470 Buying add-on insurance in car yards: Why it can be hard to say no (REP 470)
- Report 471 The sale of life insurance through car dealers: Taking consumers for a ride (REP 471).
- Report 492 A market that is failing consumers: The sale of add-on insurance through car dealers (REP 492)
In 2017 we issued Consultation Paper 294 The sale of add-on insurance and warranties through caryard intermediaries (CP 294), which sought views on whether or not a deferred sales model should be introduced for the sale of both insurance and warranty add-on financial products.
Since releasing our three reports in 2016, we have also reviewed warranties sold with motor vehicles. We have also identified poor consumer outcomes in relation to these products, consistent with our findings in Reports 470, 471 and 492.
For details of the remediation ASIC has obtained for consumers from the sale of add-on product providers: see 19-146MR ASIC announces further add-on insurance refunds, bringing total to over $130 million
Consumers can find out more details about add-on insurance 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.