Consumer credit insurance cross-sell still crook

The Australian Securities and Investments Commission has told financial institutions selling consumer credit insurance that it wants better product disclosure, a more transparent sales process and a more thorough response to complaints.

ASIC conducted a review of the consumer credit insurance market in 2009, when it obtained information from 15 authorised deposit-taking institutions that distribute consumer credit insurance in conjunction with home loans, personal loans and credit cards.

In a report on this review released yesterday, it said there were problems in a number of areas.

The report said: "Problems with the process of selling consumer credit insurance have been identified by regulators and consumer groups over a number of years. Some of these complaints include accusations that consumers were sold CCI products without their knowledge or consent, that pressure tactics and harassment were used to get sales, that misleading representations were made."

ASIC said another problem was that a large number of consumer credit insurance claims were denied. Thirteen per cent of claims on CCI products were denied compared with two per cent of all general personal insurance claims.

The data obtained from the 15 institutions involved the sale of 662,000 policies. Fifty-three per cent were sold with credit cards, 36 per cent with personal loans and 11 per cent with home loans.

The conversion rate (the percentage taking out a loan who also bought insurance) was 19.4 per cent.

The rate of denied claims was 15.9 per cent, with one institution denying 46.9 per cent of claims. Seven institutions had denial rates of 30 per cent or more.

ASIC had a number of concerns about sales practices. Seven of the institutions had sales scripts that did not specifically point out that the purchase of consumer credit insurance was optional. Three had scripts that did not distinguish between the original purpose of the calls, which was to activate a credit card, and the sale of insurance.

Nine institutions had sales scripts that did not include a clear question about whether consumers consented to the purchase of insurance.

Ten scripts did not point out the main exclusions.

None of the 12 institutions that charged the cost of the insurance upfront and capitalised it into the loan disclosed that interest was payable in these circumstances.

Six institutions offered policies that had three- or five-year terms, even though the home loans had terms of 25 years. Only one had provided information about the term of the policy.

Several institutions did not provide product disclosure statements until after they had sold the insurance.

ASIC said the training that staff received was focused on generating sales rather than minimising risks for the customer.

All institutions had complaints procedures, but ASIC found that very few breaches were recorded. One institution had 687 complaints during the review period but recorded no breaches.

Common complaints concerned consumers who did not believe they had authorised the purchase of the insurance and from consumers whose requests to cancel policies had not been put into effect.

ASIC has recommended that for telephone sales, distributors should have formal scripts for sales staff, and when sales are made in branches staff should have a checklist.

Distributors should be able to produce evidence that the consumer has consented to the purchase of consumer credit insurance.

Consumers should be told how their premiums will be structured, and if the insurance premium is funded by the underlying loan they should be informed that they will pay interest on the premium.

Product disclosure statements should be provided at the appropriate time. Staff training should be undertaken on an ongoing basis.