More than 300,000 people are expected to receive more than $100 million in compensation for a ‘junk insurance’ slammed by one consumer body as “worthless”.
The Australian Securities and Investments Commission (ASIC) on Thursday released a report into the sale of add-on insurance on credit card, car and home loans, which it found was paying out policy holders an average of 19 cents in claims for every dollar of premium.
In the case of credit card CCI, consumers were paid out just 11 cents for every dollar paid in premiums.
The usual claim-to-premium ratio on car and home insurance is about 50 cents for each $1 in premium.
The ASIC report found that consumer credit insurance (CCI) – which is often added to cover repayments if a borrower loses their job, is sick, injured, or dies – had consistently failed consumers and had also been sold using dodgy tactics, and over a long period.
In its review of the sale of CCI by 11 major banks and other lenders, ASIC said it had been “deeply troubled by its findings” and found it to be of “very low value”.
- Consumers were sold CCI despite being ineligible to claim under their policy
- Telephone sales staff used high-pressure and unfair sales tactics when selling CCI
- Consumers were given non-compliant personal advice to buy unsuitable policies
- Consumers were incorrectly charged for CCI, including being charged ongoing premiums despite no longer having a loan
- Many lenders did not have consumer-focused processes to help consumers in hardship make a claim under their CCI policy.
A spokesperson for the Consumer Action Law Centre told The New Daily that the policies were expensive, often costing thousands of dollars, and because the premiums were added to the card or loan, consumers were effectively paying twice – interest on the loan and the junk insurance.
“Typical problems that people have complained to us about include where they felt pressured to get the insurance in order to get the loan, or were sold policies they didn’t want or couldn’t claim on,” the Consumer Action spokesperson said.
To help consumers recover some of the money, Consumer Action established a website, demandarefund.com, in 2017, with 750 automated letters of demand already resulting in about $2 million in refunds.
But the body said that was “the tip of the iceberg”, with ASIC reporting it had already paid more than $51 million to 186,000 consumers, and expected about 300,000 would be paid a further $100 million.
Consumer Action CEO Gerard Brody said the policies were promoted as ‘added protection’ for people in case things went awry, but “the reality is too often people aren’t actually covered by the policy they’ve paid for”.
“They often don’t even know they’ve bought insurance in the first place, and the pitiful payouts they do get from the policy aren’t worth the paper they’re printed on,” he said.
Financial Rights Legal Centre director of casework Alexandra Kelly said when she recently reviewed the centre’s files on CCI, she found it had existed for more than 30 years.
But the insurance had persisted because, while the policies were numerous, they usually involved smaller amounts that flew under most consumers’ radars.
“Often these premiums were so small, many people didn’t even know they had the insurance,” Ms Kelly said. “But after scandals in the UK came to light, it prompted regulators to have another look at it here.”
Ms Kelly said in one case handled by the centre, a young woman who had been sold CCI had her claim rejected.
Instead, the insurer cancelled her policy and refunded her premium, but in the course of her claim, she discovered she had at the same time been sold another add-on policy without her knowledge.
In its report, ASIC said lenders and insurers had had enough time to “improve sales practices and provide better value for consumers” and warned lenders to clean up their act or face intervention by ASIC or even civil penalties.
Consumer Action recommends assessing any paperwork you have, if you took out a credit card, loan or mortgage over the past 10 years to see if you’ve been charged CCI. If so, you may be entitled to a refund.
Go to DemandaRefund.com to claim any money you think you may be owned.