Australia’s life insurance industry could be facing further regulatory reform if the sector fails to address the high cost and low value of add-on products sold through car dealerships.
The Australian Securities and Investments Commission (ASIC) called on insurers to significantly improve consumer outcomes, following the release of two reports into add-on insurance products commonly sold to consumers when purchasing cars.
One report, The sale of life insurance through car dealers: Taking consumers for a ride, found that one in 10 life insurance policies were sold to consumers aged 18 to 21, who the regulator said were unlikely to need life insurance.
The same report found that consumers were paying up to 18 times more for life insurance purchased through a car dealer, compared to similar term life insurance which provides more cover, while people purchasing a car for their small business could be charged up to 80 per cent more to get exactly the same life insurance cover as a consumer with a personal car loan.
ASIC deputy chair, Peter Kell, said some insurers had committed to changing their pricing, while others had said they were reviewing the design of their products so that they deliver better value.
“The message to industry is clear: substantial improvements need to be made to both the design and distribution of these products.
“Insurers must address the high costs, poor value and poor claim outcomes of their add-on products, especially when the very same insurers provide alternative products that offer cheaper and more comprehensive cover.
“If substantial and meaningful changes are not made we will need to take further action.
“ASIC will consider the full range of regulatory options available, including enforcement action.”
