Australian regulator ASIC’s review of the sale of consumer credit insurance (CCI) has found unacceptable sales practices, poor product design and significant remediation costs in CCI sold by major banks and lenders.
The regulator’s report is part of the regulator’s broader priority to address fairness to consumers and harms in insurance and stated it highlights the very low value of CCI products and the unfair way they are promoted and sold to consumers.
ASIC commenced the review at the end of 2017, where 11 lenders were required to undertake an independent review of their CCI sales practices and the regulator collected detailed data about the way these products performed for consumers.
The 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.
- CCI sales practices caused consumers harm: 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.
ASIC Commissioner, Sean Hughes, says, ‘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.
He added: “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.”
“Lenders and insurers have had more than enough time to improve sales practices and provide better value for consumers.”
ASIC stated it will address the problems identified in the review by:
- Undertaking investigations into the suspected misconduct of several entities involved in the CCI product market, with a view to enforcement action. The defendants to ASIC’s future action will be publicly identified at the time proceedings commence.
- ASIC added that due to the consumer harms it has seen with the unsolicited outbound sale of CCI by telephone, it will shortly consult with all interested participants and consumers with a view to ASIC completely banning this practice.
ASIC expects lenders and insurers to design and offer products with significantly higher claims ratios and will continue to collect and publish data to measure improvements.
“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.
The lenders in ASIC’s review are:
- Australia and New Zealand Banking Group Limited
- Australian Central Credit Union Ltd
- Bank of Queensland Limited
- Bendigo and Adelaide Bank Limited
- Citigroup Pty Limited
- Commonwealth Bank of Australia – Retail Banking Services and Bankwest
- Credit Union Australia Limited
- Latitude Finance Australia and Latitude Personal Finance Pty Ltd
- National Australia Bank Limited
- Suncorp-Metway Limited
- Westpac Banking Corporation