ASIC Points Finger At Car Dealers Selling Overpriced Life Insurance.
The fallout continues after car dealers selling life insurance were attacked in a recent report from the ASIC. The report found a number of glaring issues with vehicle dealers selling life insurance to customers. After finding widespread abuse, a crackdown against deceitful practices was announced, and details are still emerging on an insurance sales scam that has been allowed to go on too long.
To boost revenues, some car dealers have been aggressively selling add-on insurance at prices and rates far outside industry standards, and often without the knowledge of the buyer. Referred to in general as consumer credit insurance, it is car dealers selling life insurance that has attracted much of the criticism.
The Australian Securities and Investments Commission, a watchdog group that oversees insurance products, found that customers were significantly overpaying for life insurance sold through dealerships. Sometimes these prices reached as high as 18 times as much as insurance sold through regular brokers. Adding to that, with premiums bundled into car loans, this not only makes monthly payments higher; it also means that buyers pay interest on their insurance.
These so call “car-yard” insurance policies costs around an average of $1492, compared to $987 for plans bought through traditional means. Furthermore, the ASIC found that these policies have paid out a minuscule amount in claims. The total over the five years was only $6 million, or 6.6% of the over $90 million collected in premiums, that only 6.6¢ on the dollar.
David Leermakers, a senior policy officer at Consumer Action, said this was “scandalously low.” Domestic motor vehicle insurers pay out 71¢ in the dollar, and 57¢ for home cover, by comparison.
Dealership salespeople can earn up to a 90% commission on the sale of these insurance policies which has led to widespread misrepresentation, if not actual deceit. One glaring statistic is that one in ten policies are sold to people between the ages of 18 to 21, a group unlikely to benefit from life insurance.
Many Australian consumers may not even be aware that they had bought it. A similar situation has recently unfolded in the UK, where research found that one in five had a life insurance policy without knowing it. The Consumer Action Law Center fears the situation may be similar in Australia, and there could be $70 million worth of refunds waiting to unclaimed in the community.
“I think CCI is of such limited value, there is a case for banning,” said Gerard Brody, CEO of Consumer actions. The group has found that CCI pays out fewer claims, has more denial of applications, and when they do pay, pay out less than any other class of coverage.
Consumer Action has kicked off a “Stop Selling Junk” campaign to help raise consumer awareness of the issue. As part of that, they have launched a website, DemandARefund.com to help people claim back some of what they may have spent unknowingly.
The ASIC offers the following advice to avoid decision overload when negotiating the purchase of a new car:
- Arrive with a clear idea of what you do and don’t need regarding insurance extras.
- Stick to your guns and don’t be ‘upsold’ if you don’t want what’s on offer.
- Avoid making emotional decisions – buying a car is exciting, but it’s important to remain calm and logical.
- Ask questions. If you’re unsure about anything, don’t be afraid to ask. Salespeople often only tell you the positives, but feel free to ask about things like exclusions. It’s your money after all.
Unfortunately, for now, the burden is on buyers to be diligent in examining all the fine print before signing any agreement with a dealer.