ASIC has published Report 622 Consumer credit insurance: Poor value products and harmful sales practices (REP622) which reviews the sale of consumer credit insurance (CCI) by 11 major banks and other lenders for the period 2011 to 2018. It found that CCI sales practices and product design are delivering poor outcomes for consumers.

Findings

• CCI is poor value for money: For CCI sold with credit cards, consumers were paid only  11 cents in claims for every dollar they paid in premiums (and the more cover types in the policy, the lower its claims ratio). For all CCI sold, this increased to only 19 cents in claims paid.
• CCI sales practices cause consumer harm: CCI was sold to consumers who were ineligible to claim or unlikely to benefit or need cover. Sales staff used pressure selling and other unfair sales practices.  Consumers were given non-compliant personal advice to buy unsuitable policies. Consumers were charged CCI premiums with no current loan. Many lenders did not have consumer-focused processes to help consumers in hardship who had a CCI policy to lodge a claim.
• Lenders are exiting the CCI market: During ASIC’s work on CCI, 7 of 8 lenders have stopped selling CCI with credit cards, 5 of 9 lenders have stopped sales with personal loans, and 4 of 9 lenders have stopped sales with home loans.

ASIC’s expectations and standards
ASIC expects lenders and insurers to meet the standards set out in the report or cease selling CCI until they do.

ASIC’s expectations include:

• all CCI lenders should incorporate a four-day deferred sales model for all CCI products across all channels, not just those entities that subscribe to the Banking Code of Practice.
• lenders and insurers should design and offer products with significantly higher claims ratios.

ASIC action: Enforcement and investigations
ASIC is investigating sales of CCI that did not comply with the law before the recent strengthening of ASIC’s powers and penalties.  For future conduct, ASIC says it will use its enhanced powers and penalties, including the product intervention power where there is a risk of significant consumer detriment, and civil penalties for breaches of the duty to do all things necessary to ensure that financial services are provided efficiently, honestly and fairly.