The Federal Court has approved the settlement of a class action brought against NAB and MLC over the sale of consumer credit insurance products.
NAB will pay A$49.5 million to settle the case, which has been running since September 2018.
Law firm Slater and Gordon said in a statement that it expected to start distributing compensation in July or August. Ninety-three per cent of settlement funds are being distributed.
The claim was directed at two products, NAB Credit Card Cover and NAB Personal Loan Cover.
The claimants alleged that NAB and MLC engaged in unconscionable conduct by selling the insurance to people who were not eligible to claim under the terms of the cover or were highly unlikely to benefit from the policy.
The claimants also alleged that NAB engaged in misleading and deceptive conduct in the way it sold the policies.
NAB joins a long list of financial services companies that have paid compensation to customers who bought various types of “add-on” insurance, including Allianz, Suncorp, Swann Insurance and QBE.
ASIC has reported on the failings of consumer credit and other add-on insurance for a number of years.
In a 2018 report, it highlighted the following issues: • it was unlikely that customers would be able to claim on asset protection policies because the insured value of the car was more than the car loan (where the customer paid a large deposit);• customers did not receive rebates when they paid out their loan early (which meant that their cover under the policy had stopped);• customers were over-insured because they were sold a higher and more expensive level of cover than needed;• customers were sold a product they were ineligible to claim on;• life cover was sold to young people who were unlikely to need it;• cover was unnecessary as it duplicated existing cover held by customers, including under their comprehensive insurance policies; and• customers were sold cover for longer periods than they needed, for example, because the car was close to the kilometre limit at which cover would expire.
ASIC found that across all add-on insurance products it reviewed over three years, the gross amount returned to consumers in claims was only nine cents for every dollar of premium paid. By comparison, home insurance returns around 55 cents in the dollar.
Last year the regulator warned that unless consumer credit products were redesigned to provide better outcomes for consumers, it would use its product intervention power.
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 of CCI to meet include:• CCI products should be unbundled so consumers can select cover 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