ASIC has published Report 256 Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions (REP 256)
which looked at data provided by 15 banks, credit unions and building societies that distributed CCI in conjunction with home loans, personal loans and credit cards in the period from 1 January 2009 to 31 December 2009.
CCI is designed to protect consumers if something happens to them that affects their ability to meet their credit repayments. Typically, CCI pays loan repayments for consumers in the event of: death; permanent disablement; or loss of income due to injury, illness or involuntary unemployment.
ASIC regulates the licensing, conduct and disclosure obligations of insurers and ADIs under the Insurance Contracts Act 1984, the Australian Securities and Investments Commission Act 2001, the National Credit Code and the Corporations Act.
In its review of sales practices ASIC identified the following risks:
- consumers not being made aware that they have purchased CCI or that CCI is optional
- consumers not being asked whether or not they wish to purchase CCI
- consumers not being eligible to claim on all components of the CCI policy they have purchased
- the potential for consumers to be pressured or harassed by sales staff, and
- consumers not understanding the cost or the duration of the CCI policy.
Of the 15 ADIs ASIC reviewed, three sold at least one CCI product over the telephone without using a script. Some of the scripts that were used lacked sufficient structure to prevent staff from improvising and providing additional information not covered in the scripts.
ASIC also identified that the training delivered by some ADIs was limited to the induction of new staff and was not provided on an ongoing basis; and/or focused on generating sales rather than on minimising the risks of non-compliant sales.
ASIC’s recommendations cover:
- Formal sales scripts
- Evidence of consent
- Disclosure of interest payments
- Separate quotes
- Disclosure of premium structure
- Duration of CCI policies
- Timing of provision of PDSs
- Ongoing information
- Training programs
- Monitoring systems
ASIC plans to conduct a further review of claims handling and insurer practices for CCI.
