ASIC’s review of the sale of consumer credit insurance (CCI) by 11 major banks and other lenders has found that the design and sale of CCI has consistently failed consumers.
The company regulator’s review found that, “CCI is extremely poor value for money – for CCI sold with credit cards, consumers received only 11 cents in claims for every dollar paid in premiums. Across all CCI products sold by lenders, only 19 cents was recovered in claims for every premium dollar which consumers paid.”
ASIC Commissioner Sean Hughes said, “We are deeply troubled by the findings in our report, and the stories they tell of unfair practices occurring within Australia’s largest and most well-known financial institutions. Lenders and insurers have had more than enough time to improve sales practices and provide better value for consumers. An inevitable consequence of these widespread failings and mis-selling practices will involve ASIC taking significant enforcement action against some of the entities named in our report.”
ASIC’s report highlights the very low value of CCI products and the unfair way they are promoted and sold to consumers:
- Consumers were sold CCI despite the fact they were ineligible to claim under their policy
- Telephone sales staff used high-pressure selling and other unfair sales practices when selling CCI, and
- Consumers were given non-compliant personal advice to buy unsuitable policies.
- Consumers were incorrectly charged for CCI, including being charged ongoing CCI premiums even though they no longer had a loan.
- Many lenders did not have consumer-focused processes to help consumers in hardship make a claim under their CCI policy.
“If we do not see early, significant and sustained improvement in the design and sale of consumer credit insurance, our next steps may involve the deployment of our new product intervention power where we see a risk of significant consumer detriment. We also will not hesitate to pursue civil penalties where there has been a failure by any lender or insurer to act efficiently, honestly and fairly. All options are on the table,’ Hughes said.
ASIC’s report also sets out important design and distribution standards for CCI sold by lenders. Lenders and insurers are expected to meet these standards or entirely cease selling CCI until they do. Several lenders have already ceased selling CCI.
Hughes added, “Regrettably, the ongoing systemic failings and misconduct we have seen in the CCI market demonstrate that a range of robust regulatory responses is required. ASIC is committed to address the unfairness to consumers and lack of transparency our report has uncovered. Product issuers and distributors in the CCI market need to start to put their consumers front and centre.”
You can download the complete report here.