Insurance for nothing from ASIC

More than 30,000 car owners will have specialised car insurance premiums refunded yet maintain their insurance cover after the Australian Securities and Investments Commission forced 15 car finance firms to conform to the letter of the National Credit Code.

ASIC said it expected around A$15 million to be paid back following an ASIC review of the financing of tyre and rim insurance premiums.

Financiers involved include ANZ's Esanda, GE, St George, Macquarie and seven vendor financiers.

The Australian Finance Conference, which assisted ASIC in the review, said that over recent years "a few insurers developed products aligned to the three to four year effective life of tyres and rims to assist the customer to cover the possibility [of damage to tyres and rims]."

"While the longer term of the insurance may have suited the insurer and the vehicle customer, if a lender financed a vehicle including such insurance a breach arose."

The AFC explained in a briefing note that "the penalty for breaching [the Code] is the refunding of the premium financed to the borrower by the lender."

It said this "perverse outcome is less a technical breach than a failure of the law to keep pace with market and product innovations."

"While the market has now responded such that 12 month tyre and rim insurance is now available, it may be more convenient for all concerned for premiums to be longer than a year."