ASIC threatens more intervention in consumer credit insurance
ASIC has told lenders and insurers to redesign their consumer credit insurance products to provide better consumer outcomes, including significantly higher claims ratios.The regulator said that if it does not see "early, significant and sustained improvement in the design and sale of consumer credit insurance" it may deploy its product intervention power.ASIC has also told lenders and insurers to review any harm caused by mis-selling and identify affected customers. It expects remediation costs to exceed $100 million to be paid to more than 300,000 consumers.ASIC released the findings of a review of the CCI sector, in which it found that the design and sale of consumer credit insurance has consistently failed consumers. Products are of "low value" and sales practices are "unfair".For CCI sold with credit cards, consumers receive only 11 cents in claims for every dollar paid in premiums, and for CCI sold by lenders only 19 cents was recovered in claims for every premium dollar paid.CCI was sold to consumers despite the fact they were ineligible to claim, telephone sales staff used high-pressure tactics and consumers were given non-compliant personal advice to buy unsuitable policies.Consumers were charged CCI premiums after their loan had been paid out.ASIC said it was investigating suspected misconduct in several companies. And it said outbound telephone sales were likely to be banned.The report shows that CCI is a product segment in decline. The number of policies sold has fallen from 664,000 in 2014 to 190,000 last year. A number of lenders have stopped selling the products altogether. Among the big banks, ANZ and Commonwealth Bank sell CCI only with home loans, while NAB and Westpac have stopped selling it altogether. The standards that ASIC expects sellers to CCI to meet include: • CCI products should be unbundled so consumers can select cover they are eligible t use that meet their needs;• claims ratios must be significantly increased;• benefits should reflect the needs of consumers, such as payments for period of unemployment rather than arbitrary limits;• insurance should not be sold to consumers who are ineligible to claim;• CCI should be sold on a four-day deferral basis;• lenders and insurers should stop charging premiums when the primary benefits are no longer available, such as when a loan has been repaid; and• lenders and insurers should give consumer appropriate annual communication about the price, limits and exclusions of their insurance.