More than 35,000 add-on insurance customers will receive up to $15.9 million in refunds for insurance bought through car dealerships.
The Australian Securities and Investments Commission (ASIC) found that QBE Insurance (Australia) Guaranteed Asset Protection (GAP) and Consumer Credit Insurance (CCI), sold through car dealerships across Australia between 2011 and 2017, provided little or no benefit.
GAP insurance covers the car owner, if the car is written off, for the difference between the amount they owe on the car loan and the amount for which the car is insured under comprehensive car insurance.
CCI provides some cover to meet the repayments under a consumer’s loan contract if they die, suffer a traumatic illness (such as cancer) or become disabled or unemployed.
ASIC found the QBE’s GAP insurance was sold when it was unlikely there would be a gap between the insured value of the car and the loan balance, that it duplicated existing cover held by consumers and provided them with more cover than they needed. QBE’s CCI policies were also sold to young people who had no dependants and were unlikely to need the cover.
According to ASIC, QBE will refund the premium paid by customers who were unlikely to need GAP insurance, partially refund customers who were sold more GAP cover than they needed and refund all GAP insurance customers at least one year’s premium because ‘new for old’ cover under their comprehensive motor insurance would have provided similar cover. Consumers could claim a larger refund if their comprehensive cover provided more than one year of ‘new for old’ vehicle replacement
For CCI customers, QBE would refund those under 25 years of age for the cost of the life or trauma insurance element of their premium. QBE will also make a $50,000 payment to Financial Literacy Australia.
For customers who paid their loan off early and held both GAP and CCI insurance, QBE will partially refund the GAP insurance premium from the date the loan was paid off. It will also make a $50,000 payment to Financial Literacy Australia. Together these refunds (with interest) will be about $15.9 million.
“This large-scale remediation by QBE is a direct result of our 2016 add-on insurance review, which uncovered the widespread sale of insurance with little or no value to consumers,” said ASIC Deputy Chairman Peter Kell.
“All add-on insurers should review the sale of policies and refund consumers sold policies they didn’t need.”
ASIC is working with other insurers to see that improvements are made in the sale and design of add-on insurance products.
QBE will ask affected customers to confirm whether they want a refund rather than keeping the policy.
ASIC will release a consultation paper on add-on insurance, seeking feedback from stakeholders on possible changes to improve consumer outcomes (including a deferred sales model).