ASIC released Consultation Paper 294 (CP 294) on 24 August 2017, seeking feedback from insurers, credit providers, car Dealers, insurance and finance brokers, consumers, consumer representatives and other parties on proposals to reform the sale of add-on insurance and warranties through car dealerships.
ASIC’s consultation paper proposes:
- Proposal 1: A deferred sales model to provide consumers with additional time to consider whether they need to buy add-on insurance or warranties. The proposal is that a period of between four to 30 days must elapse before car dealership intermediaries can sell such products.
- Proposal 2: Enhanced supervision obligations on insurers over their car dealership sales people to supervise and monitor their authorised representatives selling such products.
The proposals do not apply to comprehensive or compulsory third party (CTP) insurance products.
ASIC continues to use the term ‘caryard’, the meaning of which is a place where cars are displayed in an outdoor area. This ignores the multi-million dollar investments required of franchised Dealers (by manufacturers and distributors) in enclosed retail outlets and service facilities, both of which enhance the customer purchase experience.
Your AADA secretariat and a working committee of Dealers have been examining the ASIC proposals and associated 26 questions to meet the deadline of 23 October.
ASIC’s regulatory intervention will have a significant financial impact on a dealership business model and a number of dealerships have already revised their revenue forecasts. AADA does not represent motorcycle dealerships, where the financial impact on their business models could be greater.
A major concern for franchised new car dealerships is ASIC’s focus on the motor vehicle dealership channel, even though these products (or similar products) are distributed through other channels (e.g. auction houses that sell cars and entities specialising in novated leasing, salary packaging and warranties). This channel-specific approach, rather than a product-specific approach, is discriminatory towards Dealers and results in a market distortion in favour of other entities.
Proposal 1: Deferred sales model
AADA is examining the key design features of a deferred sales model. ASIC proposes behavioural restrictions on insurers, caryard intermediaries and consumers during the deferral period.
Commencement of the deferral period
The deferral period could commence when the consumer:
(a) receives a consumer communication (with mandated content)
(b) finalises the vehicle purchase and receives the consumer communication, or
(c) takes delivery of the vehicle and receives the consumer communication.
Duration of the deferral period
ASIC proposes that the total duration of the deferral period for add-on products (except for warranties) could be a:
(a) minimum of four days, and
(b) maximum of 30 days.
ASIC proposes a different deferral period for mechanical breakdown insurance and warranties.
ASIC proposes that the consumer communication should:
(a) address the current limitations in consumers making informed decisions
(b) include information about each type of add-on product being offered through the car dealership (e.g. in a standardised format), and how they interact with other elements of the transaction
(c) provide information to consumers that is accessible and addresses different levels of comprehension or financial literacy, and
(d) make use of innovative techniques to deliver this information to the consumer.
Proposal 2: Enhanced supervision obligations for product providers
ASIC proposes to introduce specific requirements for the supervision and monitoring of a provider’s authorised representatives, based on the risk for consumers in the dealership distribution channel, and has asked the following questions:
(a) What changes would be necessary to ensure providers are effectively supervising their representatives?
(b) What risk indicators could be introduced to improve the capacity of providers to monitor their representatives?
(c) What sanctions would be most effective in deterring representatives from engaging in unfair practices at the point of sale?
The AADA working group is looking to address ASIC’s proposals in a way that ensures a level playing field across all distribution channels and results in minimal disruptions and decision making for a customer, who should be given an opportunity to voluntarily opt out of the deferred sales process.
Your comments on the ASIC proposals are important to us and should be forwarded to the AADA secretariat.