ASIC to compensate consumers $160 million for faulty credit insurance

The Australian Securities and Investments Commission (ASIC) has announced the final tranche of the over $160 million in remediation for consumers who were sold junk consumer credit insurance (CCI).

This is part of the regulator’s actions following a 2019 report which revealed that 11 major banks and lenders had sold faulty CCI for eight years. The report said that the design and sale of CCI had consistently failed consumers.

ASIC found that in 2011 to 2018, consumers who bought CCI with credit cards received only 11 cents in paid claims for every dollar paid in premiums.

“As a result of the widespread failings in CCI we identified last year, ASIC has investigations underway and has secured a significant program of remediation for consumers,” said ASIC deputy chair Karen Chester in a statement. “Over $160 million will be back in the pockets of close to half a million consumers sold this junk insurance. Our trifecta of regulatory action – the 2019 report, enforcement investigations and now, remediation outcomes – shows how we can and will comprehensively intervene when we find systemic failings and misconduct.”

To date, lenders and insurers have paid over $128 million to over 312,000 consumers in compliance with ASIC’s orders. Soon, more than $32 million will be paid to around 122,000 consumers, taking the total CCI remediation program to over $160 million and 434,000 consumers.

According to ASIC, consumers will receive remediation if:

1. Lenders sold CCI policies to consumers who were ineligible to claim or unlikely to benefit or need cover.
2. Lenders used pressure selling or other unfair sales tactics, such as making false representations, in selling CCI to consumers.
3. Consumers were incorrectly charged for CCI or their claims were incorrectly declined.
4. Lenders did not take satisfactory action to help consumers in hardship, or trustees of deceased estates, who had a CCI policy to lodge a claim.
5. Consumers received no, or very little, value from the product.

The regulator said that it is continuing its investigation of suspected misconduct in the CCI market, and will take the necessary enforcement actions.