6 June 2017
ADD-ON INSURANCE PRODUCTS: ASIC’S REGULATORY EXPECTATIONS
AADA has been participating in a working group with ASIC, the Insurance Council of Australia and others on add-on insurance products. ASIC has identified a number of issues and has asked the insurers to review their products and practices by the end of June and to implement changes by no later than the end of September 2017. Dealers whose commercial arrangements are up for renewal would be aware of presumptuous and aggressive changes to their existing arrangements and the subsequent revenue effect.Insurers have been asked to review their entire add-on insurance product suite sold through car dealerships as well as any new products against ASIC’s regulatory expectations as follows:
- Product design: Insurers should design products to meet the needs of a clearly identified target market, and should provide a tangible benefit for consumers at a reasonable value;
- Product distribution: Good distribution means that insurers and their distributors take reasonable steps that the product reaches the consumers for whom it is designed, and does not reach consumers for whom it is not suited or offers little or no benefit;
- Sales: A good sales process should enable consumers to make an informed decision about the product; and
- Review: Insurers should have processes in place to monitor and review the performance of products and distribution strategies, and whether conduct at point of sale is in line with expectations and mandated procedures. Insurers should have processes in place for taking action where such monitoring identifies concerns.
Dealers should be aware that AADA opposed the insurers’ application for authorisation before the ACCC to engage in cartel behaviour to limit commissions and other payments or benefits paid to distributors of add-on insurance products through the motor vehicle dealership channel to 20 per cent of premiums. That authorisation was denied and the ACCC was not satisfied that it was likely to address market failure to a significant degree and the likely public benefit would not outweigh the likely public detriment.Insurers actions have assumed that the 20 per cent cap will apply before ASIC has released its final report. What is also unclear is whether any proposal by ASIC will apply to comprehensive motor vehicle insurance and if a deferred sales model is adopted as in the UK the commencement date of the deferral period.We await ASIC’s findings and have submitted that a longer transition period should be considered given the effect on dealership revenue streams and the low margins on the sale of a vehicle.
Chief Executive Officer
Australian Automotive Dealer Association Ltd