2nd December, 2016 · bulletin

ASIC recommends approval of insurance
industry cartel proposals

2 minutes to read

ACCC likely to implement 20% cap and other actions in 2017

Last month ASIC reviewed the insurance industry’s application to institute a voluntary code to regulate commissions and other matters on five categories of so-called ‘add-on’ insurance sold by our members

ASIC has now published its recommendations to the ACCC which are summarised below:

  1. Insurers must deliver better value products with significantly improved claims ratios
  2. Insurers must:
    1. reduce the commissions and financial benefits payable to car dealers
    2. pass on the entirety of the savings from lower commissions to consumers through lower premiums
  3. Insurers must abandon pricing arrangements where the consumer can pay more for the same cover for reasons unrelated to the underlying risk (e.g. because the car dealer can earn higher commissions by arranging for the consumer to pay a higher premium)
  4. Insurers must redesign their policies to ensure they provide cover in circumstances that can be reasonably expected to meet the needs of their customers. Insurers must:
    1. take immediate steps to stop the continued sale of policies where  cover is unnecessary or overlaps with other cover
    2. act to prevent situations arising where their products should not be sold (e.g. gap insurance where there is no gap)
    3. act to prevent car dealers from selling products in those  circumstances
  5. Insurers should not sell single premium policies because they lead to reduced claims and increase the risk of consumers not getting a premium refund for paying out a car loan early
  6. Insurers must redesign their sales practices to:
    1. prevent failure to provide adequate information about the price of products and the options within each product before the consumer makes a purchasing decision
    2. proactively audit and identify unfair sales practices
    3. penalise misconduct including claw back of commissions and termination of agency for repeated or serious failures.

AADA understands that the ASIC decision on flex-commissions is currently being reviewed by the Office for Best Practice Regulation (OBPR), an office within the Department of Prime Minister & Cabinet, to undertake an assessment on the burden of the legislation to inform the process whether changes to legislation should proceed or not.

The timeline for the ACCC’s decision is:

  • December/January 2016/7 Public consultation on draft determination including any conference if called
  • February 2017 Final determination

We will participate in the public consultation phase via submission and face-to-face meetings. While this final phase of the process is underway we strongly recommend that you proactively engage with your insurance partners to seek an understanding of their plans.

The franchised new car dealer channel remains a significant competitive distribution advantage for insurers that partner with us. Given the role the insurance industry has played in the creation of the likely regulatory framework it is appropriate for franchised dealers to seek a full explanation as to how we will be compensated for our investments in facilities, staff recruitment and training and sales expertise once the existing plans are discontinued.

We believe this is an urgent matter that requires the attention of every owner and dealer principal and we urge you to participate fully in the resolution of future plans.

For more information, contact:

David Blackhall CEO
M: +61 413 007 833
E: dblackhall@aada.asn.au