Insurance companies denied authorisation to set a cap on commissions

The Australian Competition and Consumer Commission has issued a final determination denying authorisation to 16 insurance companies to agree to a cap of 20 per cent on commissions paid to car dealers who sell their add-on insurance products.

The Australian Securities and Investments Commission (ASIC) report, A market that is failing consumers: The sale of add-on insurance through car dealers, identifies issues such as a lack of price competition, poorly designed products, poor value for money relative to premiums, and a complex sales process that often does not disclose the total cost of the cover.

The ACCC published a draft determination in mid-February proposing to deny authorisation. Following the release of the draft determination the ACCC offered to extend the timeframe for consideration of the proposal to allow the insurers extra time to respond to the ACCC’s concerns. The insurers did not provide a submission in response to the draft determination.

ACCC Chairman Rod Sims said, “The ACCC is denying authorisation because we believe this proposal is unlikely to change sales incentives or the quality of products, and consumers will still be sold products without being given adequate information or opportunity to make a considered decision”.

“While insurers would benefit from a cap at the expense of car dealers, this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors’ costs.”

“The ACCC is also concerned that these arrangements, if implemented, could significantly delay the development of more effective solutions to the problems that ASIC has identified,” Mr Sims said.