In a major win for Dealers, the Australian Competition and Consumer Commission (ACCC) has denied 16 insurance companies authorisation to jointly impose a 20 per cent cap on commissions paid to motor vehicle Dealers who sell add-on insurance products.
The ACCC last month issued its final determination on the matter, stating its belief that the cap was unlikely to change sales incentives for add-on insurance products; improve quality of the add-on insurance products being offered for sale, or improve the information given to consumers about those products. The ACCC also said the proposed cap would benefit insurers at the expense of car Dealers and would create more opportunities for collusion and shared knowledge between insurers.
The ACCC said it was concerned a joint cap on commissions might “significantly delay the development of more effective solutions” to the ‘problems’ it had identified in the add-on insurance product market.
The insurers made their application following an ASIC report last September that criticised the sale of add-on insurance products through the Dealership channels. In that report, ASIC also stated that insurers who failed to address ASIC’s findings will be subject to further regulatory action.
Speaking at the Insurance Council of Australia Annual Forum in Sydney in February, ASIC Chairman, Greg Medcraft, blamed insurance companies for designing poor products. Some commissions can be as high as 79 per cent.
“Insurers have designed complex and extremely poor value products and put their reputations at risk,” he said.
“The general insurance industry has put forward a range of proposals to address ASIC’s concerns. We are pleased to see industry engaging on these issues, but overall the proposals fall short of addressing the underlying issues in this space.
“The insurance market continues to be at the forefront of much of ASIC’s regulatory agenda.”
In the absence of authorisation by the ACCC of the proposed joint cap on commissions, a collective step taken by insurers to cap sales commissions for Dealers would run the risk of contravening the prohibitions against cartel conduct in the Competition and Consumer Act 2010.
The ruling is subject to appeal but ASIC has accepted the determination. So as far as AADA is concerned, the matter has been settled in favour of Dealers with the finer points still to be ironed out.
AADA, AP Eagers and AHG will now participate in a working group with ASIC to develop a final solution, which will hopefully be resolved within the next two months.
It is a very pleasing result for us, considering the amount of work we put in to take on the might of the insurance companies. It was not an easy process, with the insurance companies at times reluctant to even meet with AADA.