The Australian Securities & Investments Commission (ASIC) has commenced work with representatives from the banking industry on reforming Consumer Credit Insurance (CCI) in Australia.
This type of add-on insurance, often sold with credit cards, personal loans, home loans and car loans, is intended to help borrowers meet their repayments if they lose their job, become sick or injured, or die.
But according to ASIC, CCI has long been associated with poor consumer outcomes in Australia and overseas, with many consumers being unaware that they have purchased CCI, or discovering they are ineligible to make a claim on their CCI policy. When compared to other common insurance products, such as car and home insurance, consumers may receive relatively little back in claims compared to what they pay in CCI premiums.
Following prior ASIC audits of eight Australian banks, as well as ASIC’s work in relation to add-on insurance products (including CCI) sold through car dealerships, the CCI Working Group was established, including representatives from ASIC, the ABA, banks and consumer advocacy groups. The Group met for the first time on 27 July 2017, with a goal to progress a range of reforms, including a deferred-sales model for CCI sold with credit cards over the phone and in branches.
Under this deferred-sales model, consumers cannot be sold a CCI policy for their credit card until at least four days after they have applied for their credit card over the phone or in a branch, reducing the risk that a consumer will feel pressured to purchase a CCI product that does not meet their needs.
The CCI Working Group has also seen banks commit to strengthening their processes for obtaining express consent from customers who purchase CCI, and providing improved disclosure about the cost and duration of these policies. The Australian Bankers’ Association (ABA) is set to incorporate these measures into its revised Code of Banking Practice and accelerate their introduction so they commence in the first half of 2018, well before the new code is fully in place.
According to ASIC deputy chair, Peter Kell:
“Consumers should be confident that when they sign up for consumer credit insurance, they know what it is and that it suits their needs.”
“We welcome industry’s commitment to improve their sales practices and look forward to working with industry and consumer advocates on these initiatives.”