Today ASIC announced the final tranche in over $160 million in remediation for consumers sold junk consumer credit insurance (CCI). This follows ASIC’s 2019 report (REP 622) on the sale of CCI by 11 major banks and lenders across eight years, which found that the design and sale of CCI had consistently failed consumers.
ASIC Deputy Chair Karen Chester said, ‘As a result of the widespread failings in CCI we identified last year, ASIC has investigations underway and has secured a significant program of remediation for consumers. Over $160 million will be back in the pockets of close to half a million consumers sold this junk insurance. Our trifecta of regulatory action – the 2019 report, enforcement investigations and now remediation outcomes – shows how we can and will comprehensively intervene when we find systemic failings and misconduct.’
Lenders and insurers have to date paid over $128 million to over 312,000 consumers to address ASIC’s concerns. Shortly, over $32 million will be paid to more than 122,000 consumers, taking the total CCI remediation program to over $160 million and 434,000 consumers.
Deputy Chair Chester said, ‘ASIC’s work has ensured these remediation programs are not only consumer-focused but also robust. It’s both unfair to consumers and ultimately costly to business to sell junk insurance. There is nothing fair about selling on-going consumer credit insurance to a 65-year-old when eligibility falls away at 66. There is nothing fair about selling insurance with involuntary unemployment cover to an unemployed worker. These sales practices were systemic and through ASIC’s work, hundreds of thousands of consumers like these ones, have been compensated.’
Remediation is being paid where:
- Lenders sold CCI policies to consumers who were ineligible to claim or unlikely to benefit or need cover – $105.8 million paid to over 244,000 customers;
- Lenders used pressure selling or other unfair sales tactics, such as making false representations, in selling CCI to consumers – $37.34 million paid to over 48,000 customers;
- Consumers were incorrectly charged for CCI or their claims were incorrectly declined – $13.9 million paid to over 57,000 customers;
- Lenders had inadequate consumer-focused processes to help consumers in hardship, or trustees of deceased estates, who had a CCI policy to lodge a claim – $5.06 million paid to over 1,000 customers; and
- Consumers received no, or very little, value from the product – $5.77 million paid to over 84,000 customers.
ASIC is continuing to investigate the suspected misconduct of several entities involved in the CCI product market, with a view to taking enforcement action.
Lenders are exiting the CCI market
Since the release of ASIC’s report (REP 622) in July 2019, all lenders in our review are now no longer selling CCI with credit cards, personal loans, or home loans.
However, many hundreds of thousands of existing consumers continue to hold and pay premiums for a CCI policy. ASIC will continue to collect and publish claims ratios to check how CCI products provide value to consumers and ensure ongoing public transparency.
Deputy Chair Karen Chester said, ‘Importantly, the forthcoming design and distribution obligations will mean that junk insurance like this will not reach consumers. This underscores the value to consumers and ultimately business of the DDO legislative reform which will come into effect in 2021.’
ASIC’s ongoing work
For the financial years 2011-2018, ASIC found that for CCI sold with credit cards, consumers received only 11 cents in paid claims for every dollar paid in premiums. Across all CCI products, 19 cents was paid to consumers as a proportion of insurance premiums. ASIC expects lenders and insurers to significantly improve these claims ratios – both for existing consumers and for any new customers.
More broadly, ASIC continues to work on important safeguards to protect consumers and reduce the risk of mis-selling, and has undertaken a number of initiatives:
- banned unsolicited ‘cold call’ telephone sales of CCI and direct life insurance to prevent poor sales practices, including the use of sophisticated sales and pressure-selling techniques (effective 13 January 2020);
- worked with industry to incorporate a four-day deferred sales period into the Banking Code of Practice (effective 1 July 2019), and the General Insurance Code of Practice (effective 1 July 2021 but can be adopted earlier) – to ensure that consumers are given sufficient time to review, consider and decide whether the CCI policy meets their needs and provides good value; and
- set out ASIC’s expectations of all lenders who sell CCI and of insurers who design and price the products and handle claims in REP 622. Due to the COVID-19 pandemic situation ASIC has deferred work until later in 2020 on seeking assurances that the minimum standards in REP 622 report are being met, and compliance changes have been implemented and are working effectively. Importantly, and to ensure transparency, ASIC will still proceed to collect data from the entities.
Further, under the new design and distribution obligations, financial services providers will be required to design and sell products that are fit for purpose and better meet consumer needs.
ASIC will shortly commence a public review of its current remediation guidance (set out in Regulatory Guide 256). The purpose of this review is to ensure that ASIC’s guidance applies effectively across the entire financial services sector, and to clarify ASIC’s expectations about how firms should be conducting consumer-centric remediations. It will also seek to improve transparency about consumer remediation outcomes.
Background
In December 2017, ASIC commenced a review of the design and sale of CCI, and required 11 lenders to undertake an independent review of their CCI sales practices. ASIC also collected detailed data about the way these products performed for consumers.
In July 2019, ASIC published its findings in Report 622 Consumer credit insurance: Poor value products and harmful sales practices (REP 622), which highlighted the very low value of CCI products and the unfair way they are promoted and sold to consumers. This work formed part of ASIC’s broader priority to address fairness to consumers and, in particular, harms in insurance.
ASIC’s review covered the following 11 lenders:
- 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.
Allianz has also undertaken a remediation program in relation to the sale of CCI through lenders following ASIC’s review.
ASIC’s Moneysmart website has information for consumers to consider before buying consumer credit insurance.
