Scrutiny
of add-on insurance products by consumers, regulators and government has
increased recently, with a particular focus on the sale of consumer credit
insurance (CCI).
Insurers
and third-party sellers have been criticised for offering poor-quality products,
pressure selling and selling to consumers who were unaware they were consenting
to purchase CCI.
In
light of these concerns, the Customer Owned Banking Code Compliance Committee
conducted an Own Motion Inquiry (inquiry) into the sale of CCI by Customer
Owned Banking Code of Practice subscribers.
The Committee’s aim was to establish whether
and how Code subscribers sell CCI and other add-on insurance products, and to
examine their compliance with related Code
obligations in particular the obligation to ensure that add-on insurance
products are useful, reliable and of value to consumers.
A copy of the report can be downloaded here.
Findings
Data
for the inquiry was collected via a written questionnaire completed by all Code
subscribers as part of the Annual Compliance Statement (ACS) program, as well
as a Data Verification Project (DVP) with a selection of 13 Code subscribers
who sold a high volume of CCI policies.
The
inquiry revealed that the vast majority of Code subscribers sell add-on
insurance, focusing almost exclusively on CCI and hybrid CCI products. All
subscribers that sell add-on insurance receive a commission, typically around
20% of gross written premium.
While
all 13 Code subscribers participating in the DVP reported that consumers are
made aware of the cost and term of the CCI through one or more pieces of
documentation (such as a PDS), the inquiry found that only a handful said they
also discuss these matters with consumers during the sales process.
Additionally, very few reported having mechanisms in place to prevent the sale
of CCI to consumers who are ineligible to make a claim.
Code subscribers promise that products they sell are useful, reliable and of value to consumers and that they adequately train employees and authorised representatives. They also undertake to have appropriate frameworks in place for monitoring and ensuring compliance with the Code.
The findings of the inquiry suggest that not all Code subscribers are complying with the Code’s requirements, particularly in relation to reviewing the usefulness, reliability and value of CCI to consumers and monitoring the sale of add-on insurance products.
To
assist Code subscribers, various Code compliance recommendations are included
throughout the report, as well as the applicable recommendations from ASIC’s Report 256 on CCI for
reference.
Compliance
with the Code by subscribers in selling CCI will be reviewed by inclusion of
relevant questions in the next ACS.
About the Customer Owned Banking Code Compliance Committee
The Code Compliance Committee is an independent body responsible for monitoring Code subscribers’ compliance with the Customer Owned Banking Code of Practice (the Code). Through the Code, 63 subscribing credit unions, mutual banks and mutual building societies voluntarily commit to fair and responsible customer owned banking practices.