Focus: ASIC Report 256-Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions
Services: Financial Services, Insurance
Industry Focus: Insurance

The Australian Securities and Investments Commission has recommended 10 ways in which the sale of consumer credit insurance products can be improved. 1 These recommendations, made on 19 October 2011, arise from ASIC's report on poor practices used by banks, credit unions and building societies to sell CCI products. CCI is now firmly on ASIC's radar, so insurers and their distributors should not be surprised to receive notices from ASIC inquiring about their sales practices.

The background

Past mis-selling of CCI products prompted ASIC to conduct a review of the sales practices of 15 authorised deposit-taking institutions. ASIC reviewed how these products had been sold in conjunction with home loans, personal loans and credit cards during 2009. ASIC obtained information from the ADIs about their sales and disclosure practices, their training and monitoring programs and how they responded to complaints and breaches.

ASIC Commissioner Peter Boxall stated that the review revealed practices that had led to 'poor outcomes for consumers'. 2 He noted that the recommendations contained in ASIC's report were relevant not only for ADIs that sell CCI products but also non-ADI distributors, as well as product issuers themselves.

The recommendations

All insurers and distributors involved in the sale of CCI products should read ASIC's report carefully but here is a summary of ASIC's 10 recommendations:

  1. Use a formal script or checklist when selling CCI products

    ASIC considers that consumers can be misled when sales staff 'ad lib'. It has provided a list of 10 key features that each sales script should contain. Every distributor of CCI products should compare their scripts against ASIC's list.

  2. Keep a record of the consumer's agreement to purchase CCI

    This may be a signature in the case of a face-to-face sales situation or a recording of consent given during a telephone call.

  3. Inform the consumer about any interest payable on the premium

    If the consumer's loan will fund the CCI premium, the consumer should be told that they will need to pay interest on the premium and, ideally, the total amount of that interest.

  4. Tell the consumer the amount of the loan repayments and, separately, the premium

    ASIC's recommendation is not to even raise the issue of CCI until after the loan repayment amounts have been quoted.

  5. Disclose how the CCI premium is structured

    For example, is the premium funded by the loan? How often is the premium paid?

  6. Ensure the consumer knows the duration of the CCI product

    This is especially the case where the duration of the CCI product is not linked to the duration of the underlying loan.

  7. Provide a product disclosure statement to the consumer at the right time

    In most cases, this will be before the CCI product is issued.

  8. Help the consumer obtain more information about their CCI product

    ASIC expects contact details for queries and claims to be displayed prominently.

  9. Provide staff with ongoing training

    The training should cover all of the areas ASIC has identified in its report.

  10. Document and implement a monitoring system for non-compliant CCI sales

    ASIC expects regular reviews of sales, complaints and cancellations, including procedures for following up complaints with staff and consumers.

What further action does ASIC have planned?

This is not the last we will hear from ASIC on the matter of CCI products. ASIC has signalled its intention to:

  • publish more information to educate consumers in relation to CCI;
  • review ADIs to ensure that they implement ASIC's recommendations;
  • review in more detail the claims and complaints handling of ADIs and insurers in relation to CCI products; and
  • review the profitability of CCI business, due to ASIC's concern that CCI claims are declined at a disproportionately high rate.

ASIC has also fired a warning shot across the bow of non-ADI distributors of CCI products, stating that it may review their practices in future.

DibbsBarker has advised many insurers and distributors in the sale of CCI products. We can help you review the impact of ASIC's recommendations on your business.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Footnotes

1 http://www.asic.gov.au/asic/asic.nsf/byHeadline/11%E2%80%93224MR%20ASIC%20seeks%20improvement%20in%20CCI%20sales%20practices

2 ASIC Media Release 11–224MR, 19 October 2011