The Australian Competition and Consumer Commission (ACCC) is soon to decide whether it will limit commissions paid to Dealers by insurance companies.
Last year the Australian Securities and Investments Commission (ASIC) released a report stating Dealers were selling consumers expensive products with high commissions in a high pressure environment, with little benefit for the consumers.
It said consumers paid $1.6 billion in premiums for add-on insurance, receiving $144 million in successful insurance claims – a payout of just nine per cent.
AADA has campaigned against any such cap, arguing in a submission to the ACCC inquiry that there is nothing to suggest the cap will result in lower prices for consumers and could lead to higher prices in the longer term in a less competitive market.
It has been acknowledged that identical products are distributed through other channels and authorisation by the ACCC of the insurers’ proposal will place the motor vehicle dealership channel at a competitive disadvantage likely resulting in consumers paying increased prices in the longer term.
The ACCC is due to make a draft determination on the commissions shortly.
The Consumer Action Law Centre (CALC) also made a submission to the ACCC inquiry. In it, it argued for a ban on single premium policies, a ban on the sale of life (trauma) insurance in dealerships, unbundling the sale of add-on insurance from the sale of loans and reducing commissions to 10 per cent.
AADA argues that the proposed changes to limit new car Dealer commissions on the sale of add-on insurance products to 20 per cent (or less) of the premium will make it even harder for Dealers to profit from car sales where the average margin is 2 per cent.
If Dealers are no longer able to sell insurance at rates above such a cap, this will potentially leave the customer with little alternative but to seek products from less competitive sources.
The insurers’ proposals do not provide any competitive mechanism to force savings from reduced commissions to be passed on to consumers and does not contemplate any competitive mechanism that will reduce insurers’ margins on those products.
This is a matter of extreme significance for Dealers and their future prosperity, and AADA awaits ACCC’s draft determination with baited breath. We will update you as soon as we learn more.