The Insurance Council of Australia
(ICA) has announced proposed enhancements for the sale of add-on insurance products to upgrade sales processes and improve value for customers.
ICA defined add-on insurance products as policies bought in addition to a motor vehicle purchase and which covers financial losses connected to that item. These are often sold through car dealers, and may include consumer credit insurance, gap insurance, mechanical breakdown, and tyre and rim insurance.
Rob Whelan, ICA CEO, said: “The ICA and its members are working to introduce measures to address ASIC
’s concerns about these products and sales practices. Insurers agree the sales process could be improved to assist consumers make better decisions on insurance.”
Among the proposed changes are the following:
- A transition to capping commissions at 20 per cent (subject to approval by the Australian Competition and Consumer Commission) to minimize incentives for inappropriate sales practices;
- Enhanced disclosure to ensure that customers comprehend the policies they are buying;
- Better post-sale communication with customers;
- Improved sales systems to identify and prevents sales to customers that would receive limited benefits from the policies; and
- A financial literacy initiative by the industry to help customers better understand insurance questions that may come up when buying a vehicle.
Whelan has expressed confidence that once these changes take effect, the protection and value that consumers receive from add-on products would improve.
“Add-on insurance policies play a role in protecting consumers when they make some of the biggest purchases of their lives,” Whelan said. “They can protect policyholders who lose jobs, become sick or injured, or write-off their vehicles, from potentially crippling debts. However, insurers agree that improvements can be made.
“Add-on insurance products are a small part of the overall general insurance market and generate few disputes. The initiatives being undertaken by general insurers highlight again how a self-regulatory approach, in cooperation with the regulator, can deliver effective outcomes for policyholders.”
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