7 min
Episode 32: Add-on insurance The ASIC Podcast
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- Government
ASIC Senior Executive Leader Michael Saadat joins the podcast to discuss add-on insurance, and ASIC's work to shine a light on poor practice, remediation outcomes, and efforts to protect consumers in the future.
Click through for the transcript:
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Episode 32 transcript: Add-on insurance
16 March 2018
ASIC podcast – Episode 32 transcript
Host: Hello and welcome to the official podcast of the Australian Securities and Investments Commission. In today's episode we'll be discussing add-on insurance and the work that ASIC is doing in this area. My name is Tessa Loftus and with me this time around is Senior Executive Leader of Deposit Takers, Credit and Insurance at ASIC, Michael Saadat. Michael, thanks very much for your time.
Michael Saadat: Thanks very much Tessa.
Host: So before we talk about ASIC's work in this area, could you give me a little bit of an explanation of what add-on insurance is, and what it's for?
Michael Saadat: Add-on insurance is a type of insurance that's sold when you buy another product and in this case we've been focusing on add-on insurance that's sold when you buy a car. So most consumers would be familiar with Comprehensive Car Insurance that you usually buy when you've got a car, that protects you if you have an accident, but there's a whole range of other add-on insurance products that are also sold when you buy a car, especially when you buy a car on finance. And these are insurance products that are designed to provide coverage if something goes wrong and you can't pay back your loan, so products like gap insurance or consumer credit insurance but there's also other products including tyre and rim insurance. So ASIC's had a focus on these products because we don't think consumers understand how these products work and there have been quite a few poor consumer outcomes that we have identified in our work associated with these products.
Host: What are some of the problems and the poor outcomes you've identified with add-on insurance?
Michael Saadat: We've identified a range of problems with the sale of these products through car dealerships. Firstly, we've identified that these products can be very expensive for consumers, often in the thousands of dollars, and they're expensive partly because insurers have been paying very high commissions to car dealers to sell these products. We've seen examples of commissions of up to 80% for these products, which means for example, if you are paying $1000 dollars for gap insurance and the commission on that product is 80%, then the insurer is paying 80% of that $1000 to the car dealer as a commission, so $800. Which as you might guess doesn't actually leave a lot of money on the table for claims and what we found was actually that consumers were not getting much money back in claims with these products and why we've been saying for some time that these products are really very poor value for money for consumers.
One of the key statistics that we identified through the extensive data we collected in this market is that over a 4 year period consumers paid over 1.6 billion dollars in premiums to insurance companies for these add-on insurance products. And of that 1.6 billion, insurers paid car dealers around 600 million dollars in commissions, but consumers only received around 150 million dollars back in claims. So car dealers have been earning 4 times more in commissions than consumers have been receiving in claims and this is why we've been saying that this is a market that has been failing consumers.
Host: So in the last few months, there've been several quite significant add-on insurance remediation programs initiated by ASIC, can you tell me a little bit about those?
Michael Saadat: Yeah we've been doing a lot of work to address what we consider to be unfair outcomes that have occurred with these products over a number of years. And we've announced so far four very large remediation programs or refund programs for consumers who've been a
ASIC Senior Executive Leader Michael Saadat joins the podcast to discuss add-on insurance, and ASIC's work to shine a light on poor practice, remediation outcomes, and efforts to protect consumers in the future.
Click through for the transcript:
----more----
Episode 32 transcript: Add-on insurance
16 March 2018
ASIC podcast – Episode 32 transcript
Host: Hello and welcome to the official podcast of the Australian Securities and Investments Commission. In today's episode we'll be discussing add-on insurance and the work that ASIC is doing in this area. My name is Tessa Loftus and with me this time around is Senior Executive Leader of Deposit Takers, Credit and Insurance at ASIC, Michael Saadat. Michael, thanks very much for your time.
Michael Saadat: Thanks very much Tessa.
Host: So before we talk about ASIC's work in this area, could you give me a little bit of an explanation of what add-on insurance is, and what it's for?
Michael Saadat: Add-on insurance is a type of insurance that's sold when you buy another product and in this case we've been focusing on add-on insurance that's sold when you buy a car. So most consumers would be familiar with Comprehensive Car Insurance that you usually buy when you've got a car, that protects you if you have an accident, but there's a whole range of other add-on insurance products that are also sold when you buy a car, especially when you buy a car on finance. And these are insurance products that are designed to provide coverage if something goes wrong and you can't pay back your loan, so products like gap insurance or consumer credit insurance but there's also other products including tyre and rim insurance. So ASIC's had a focus on these products because we don't think consumers understand how these products work and there have been quite a few poor consumer outcomes that we have identified in our work associated with these products.
Host: What are some of the problems and the poor outcomes you've identified with add-on insurance?
Michael Saadat: We've identified a range of problems with the sale of these products through car dealerships. Firstly, we've identified that these products can be very expensive for consumers, often in the thousands of dollars, and they're expensive partly because insurers have been paying very high commissions to car dealers to sell these products. We've seen examples of commissions of up to 80% for these products, which means for example, if you are paying $1000 dollars for gap insurance and the commission on that product is 80%, then the insurer is paying 80% of that $1000 to the car dealer as a commission, so $800. Which as you might guess doesn't actually leave a lot of money on the table for claims and what we found was actually that consumers were not getting much money back in claims with these products and why we've been saying for some time that these products are really very poor value for money for consumers.
One of the key statistics that we identified through the extensive data we collected in this market is that over a 4 year period consumers paid over 1.6 billion dollars in premiums to insurance companies for these add-on insurance products. And of that 1.6 billion, insurers paid car dealers around 600 million dollars in commissions, but consumers only received around 150 million dollars back in claims. So car dealers have been earning 4 times more in commissions than consumers have been receiving in claims and this is why we've been saying that this is a market that has been failing consumers.
Host: So in the last few months, there've been several quite significant add-on insurance remediation programs initiated by ASIC, can you tell me a little bit about those?
Michael Saadat: Yeah we've been doing a lot of work to address what we consider to be unfair outcomes that have occurred with these products over a number of years. And we've announced so far four very large remediation programs or refund programs for consumers who've been a
7 min