Calls for reforms in consumer insurance
Last year the Consumer Action Law Centre (CALC) called for law reform, which would see a banning of add-on insurance products such as Consumer Credit Insurance (CCI).
Products like CCI are generally sold as an add-on when people are acquiring home loans, car loans, credit card or personal loans, in the event that credit repayments may not be able to be made due to death, illness or job loss. The CALC is arguing that there is an alarming tendency for CCI to be sold with manipulative sales processes, even going as far as calling it a “rubbish product”.
CALC CEO Gerard Brody went as far as saying, “These products truly are junk. They’re poor value products that are commonly sold in a manipulative way and are getting worse. Bundling of low-value insurance with a car or other loan takes advantage of Australians. Many people don’t even realise that they’re purchasing the insurance because they’re focused on buying the main product.”
“Consumer Credit Insurance only pays out 23 cents in the dollar—that’s less than half of what’s paid out on home insurance. Quite frankly, it’s scandalous that they’ve gotten away with it for so long. We’re calling for the insurance industry to make these products worth something or we’ll seek to have them banned.”
The report also suggested that high commissions are a significant problem, noting:
- Up to 65 per cent of the premiums paid for Gap Insurance goes to commissions benefiting the salesperson
- CCI salespeople commonly retain one dollar in every five as a commission.
“Conflicted remuneration has contributed to scandalous practices across financial planning and life insurance, and here it is again. High commissions drive this industry”, added Mr Brody.
The Author of the report and Senior Policy Officer at Consumer Action, David Leermakers says Australians need to fight back to make sure they’re not being taken advantage of by insurers, “Many of our clients aren’t even aware they’ve bought these products, and are paying thousands of dollars for them. But Australians do have rights. We’ve helped a number of our clients successfully seek refunds and we want all Australians to have the opportunity to do the same.”
Related links:
The types of insurance that aren’t worth your while
Some health insurers at risk of breaching consumer law
What factors are affecting my life insurance premium?