David Blackhall

THE Australian Automotive Dealers Association (AADA) has raised a number of concerns with the Australian Competition and Consumer Commission (ACCC) over their treatment of car dealers in regard to insurance industry proposals to limit commissions for so-called “add-on” insurance.

The AADA lodged a formal submission with the ACCC on October 21 that questioned the public benefit of a proposal that sought permission for insurers to engage in cartel behaviour by proposing an industry-wide 20 per cent cap on commissions.

“Why is 20 per cent the right number in terms of a cap?” asked AADA chief executive officer David Blackhall. “We have had a 20 per cent cap for many years on other insurance, the most prominent one is consumer credit insurance (CCI), and no reasonable person could argue that the 20 per cent cap on CCI has resulted in better consumer outcomes.

“Why is 20 per cent the right amount? Why isn’t it 30, why isn’t it 10 – I mean if 20 is good isn’t 10 better? Is it 20 because that’s what the insurance industry proposed?”

The inclusion of comprehensive motor vehicle insurance in the ACCC’s deliberations on this matter is also of concern to the AADA. According to Mr Blackhall, the ACCC has previously excluded comprehensive insurance on the grounds that it didn’t think it need any further regulation as it was already a very competitive and well-run segment.

“It is perplexing to us why suddenly comprehensive insurance is included,” Mr Blackhall said. “But people could probably draw their own conclusions about the revenue stream associated with this product.”

Another matter to raise the ire of the AADA is an apparent imbalance in the time the ACCC has spent listening to the various parties.

According to Mr Blackhall the ACCC has been engaged with the insurance industry, effectively in-camera, since March while the peak body for car dealers in this country has been given less than four weeks to respond.

The AADA has also questioned why the ACCC is concerning itself only with add-on products sold by car dealers and not, for example, big box appliance retailers who regularly sell add-on insurance in the form of extended warranties.

It’s not all bad news. The ACCC is apparently interested to understand further what the downstream effect will be of any regulatory action on the car dealer business model.

According to car-industry specialist Deloitte, a loss of just five per cent of finance and insurance income across the board would increase the number of loss-making dealers from one-in-four to one-in-three.

That statistic along with a robust submission and ongoing lobbying from the AADA will hopefully assist the ACCC in taking a well-reasoned and more widely-researched approach.

By Daniel Cotterill