ASIC has announced that the Commonwealth Bank (Commbank) will refund over 65,000 customers approximately $10 million after selling them unsuitable consumer credit insurance (CCI).
CCI is a type of add-on insurance sold with credit cards, personal loans, home loans and car loans and is promoted to help borrowers meet their repayments if they become sick, injured or involuntarily unemployed.
- According to ASIC, between 2011 and 2015 Commbank sold ‘CreditCard Plus’ (insurance for credit card payments) to customers who were either unemployed or students. They were therefore not eligible to claim for unemployment or temporary and permanent disability cover provided by the CCI.
ASIC expects insurers to have in place controls in the sales process that help ensure:
- ineligible customers; or
- customers that receive little or no value
are knocked out of the sales process.
Home Loan Protection
- According to ASIC, between 2007 and 2015 Commbank sold ‘Home Loan Protection’ to customers and did not adjust the amount of cover under the CCI policy where the amount borrowed was less than the original loan amount they applied for.
ASIC’s concerns arose because:
- CommBank charged these customers for more cover than they needed under the policy; and
- in some cases cover was also provided and paid for before a loan was drawn down.
This appears likely to be a systems related issue ie it the system didn’t take into account the above scenarios which could result in detriment to the customer.
ASIC Deputy Chair Peter Kell said it was unacceptable that customers were sold insurance that ‘did not meet their needs’ and noted ‘one of ASIC’s priorities is addressing poor consumer outcomes associated with add-on insurance, including CCI…consumers should not be sold products that provide little or no benefit, and banks should have processes in place that ensure this.’
ASIC’s focus on add-on insurance
In recent times ASIC has had a significant focus on add-on insurance products following the release of three reports covering its review of the sale of add-on insurance through car dealerships in 2016.
ASIC has advised it will shortly release a consultation paper to consult on proposals in relation to add-on insurance products sold through car dealerships, including a deferred-sales model for this channel.
Under this model, consumers would be provided with the relevant disclosures at the point of sale, and only contacted after they leave, to allow time for the consumer to consider whether they need the products being offered.