Add-on insurance sales deferral model released

The government's new deferred sales model for add-on insurance products will include an option for ASIC to exempt products where the benefits of being able to purchase add-on insurance immediately outweigh the benefits of deferral.

The government has moved on its commitment, in response to the Hayne royal commission report, to implement a deferred sales model for add-on insurance products, releasing a proposed model for industry consultation.

The deferred sales model would apply to any insurance product offered at the same time as the purchase of a primary product, such as consumer credit insurance attached to the sale of a car.

Under the model, once consumers have purchased a "primary product" they will receive prescribed information about the add-on insurance product. They have four days to accept or decline the offer.

The aim is that the deferral period will encourage consumers to consider the merits of the insurance being offered and to consult alternative providers.

The add-on insurance sector covers around 30 products sold through a range of distribution channels. Products include consumer credit insurance, travel insurance, ticket or event cancellation insurance, guaranteed asset protection and rental vehicle excess insurance.

The royal commission found that there were poor customer outcomes arising from the sale of add-on insurance because of the complexity of the products and high-pressure sales tactics.

It said the combining of the sale of a motor vehicle, along with finance and add-on insurance restricted the capacity of consumers to make "rational and informed purchasing decisions."

An earlier ASIC review found that add-on insurance represented poor value for consumers in terms of claims ratios. Consumer credit insurance returned 19 cents in the dollar.

The worst cases of mis-selling were found to be car dealerships selling CCI. Others included airlines charging inflated premiums for insurance bought online with a ticket sale.

Criteria for exempt add-on insurance products would include: historically good value for money; strong competition in the market; high risk of underinsurance; and the product being well understood by consumers.