David Blackhall

CHANGES made by Allianz to its add-on insurance portfolio are a clear and well-crafted attempt to appease regulators and allow the company to remain in the hitherto very profitable add-on insurance business.

What’s not clear just yet is how profits will be split between the insurance company and car dealers under this new lower premium, lesser commission regime.

Australian Automotive Dealer Association (AADA) CEO, David Blackhall, says he has serious concerns about the way things are being handled.

“First, these insurance categories are still under review by the Australian Securities and Investment Commission (ASIC) ahead of publication of draft recommendations later this month.

“In our view, the insurers should have waited for the referee – ASIC – to make the draft public rather than jumping the gun. It looks like a preemptive attempt to appease the regulator at the expense of our members while at the same time protecting their economic rent.

“Second, based on the material we have seen, dealers can generally expect to have commissions capped at around 21 per cent – the very level that Australian Competition and Consumer Commission (ACCC) Chairman Rod Sims declared to be nothing more than a ‘wealth transfer’ from dealers to the insurers.”

Mr Blackhall pointed out that dealers were being given no information on how the reduced revenues from the aggressive premium reductions are to be shared between AADA members and the insurers.

Click here to access the full text of the AADA’s response.

“How do new-car dealers know that they are not being asked to shoulder an unreasonable share of this burden,” Mr Blackhall asked? “There is no transparency – or at least there isn’t in what we’ve seen so far. Is that a true business partnership?

“We’re recommending to our members that before signing up to the new rules, they go immediately to their insurance providers and ask for a full and accurate disclosure on how this pain is to be shared.”

Not surprisingly, Allianz sees things a little differently.

According to an Allianz company spokesperson, “There seems to be a limited appreciation in some quarters of the serious threat posed to the whole current dealer motor add-on insurance distribution model, particularly taking into account the fact that ASIC is expected to gain new legislative powers later in the year that would enable it to ban products and/or distribution arrangements.

“Allianz’s current changes are in response to ASIC’s already clearly stated expectations in relation to price, commissions, product design and value. There may be some misunderstanding of the current process, in particular, the further guidelines to be released by ASIC in coming months will relate to issues in addition to those addressed by Allianz’s recently announced changes.

“In particular, they will relate to changes that ASIC expects to see following on from the recent industry workshops, that included all key stakeholders, and focused on further issues relating to product design, as well as the sales process, specifically, the introduction of a deferred sales model.

“In all Allianz’s dealings with and responses to ASIC we have sought to strike a balanced outcome that delivers the improved customer value proposition required,” the Allianz spokesperson said.

Mr Blackhall was undeterred: “To be frank, the communications process from the insurers has been awful. We’ve been sitting in the same room with them for months at ASIC’s working groups attempting to reach a sensible business outcome. Did anyone pick up the phone and let us know they were planning to rollover at our expense? We’re most disappointed.”

Mr Blackhall went on to say that “AADA members would be even more disappointed if the insurance cartel achieved ‘by stealth’ what was denied when the ACCC rejected its earlier application for a universal cap of 20 per cent.

“Someone needs to keep a sharp eye on the range of commission caps adopted by the ‘sixteen sisters alliance’ as we call the original cartel applicants,” he said. “Wouldn’t it be a terrible look if the caps all clustered around 20 per cent? Surely the ACCC would have an interest in that from a competitive perspective?”

Mr Blackhall said that based on extensive work with ASIC around the add-on insurance issue, the AADA was realistic about the fact that commission reductions were an inevitable part of the solution. He was adamant, however, that equity had to prevail.

Mr Blackhall also expressed concerns about the unintended consequences of overly draconian regulations.

“It is an indisputable fact that some consumers – often the very customers that the ACCC and ASIC are most focused on protecting – could be denied access to new, lower polluting, safer cars to get to work, to run the kids to school or to ply their trade if an even-handed regulatory approach is not adopted.

“We are continuing to work with ASIC to ensure the regulations do not have adverse impacts not contemplated at the outset.

“It would be useful if the insurers could work with us so that dealers can continue to make a reasonable return on the multi-million dollar facilities, staff and customer base that new-car dealers provide access to them free-of-charge.”

There are already unintended consequences of these circumstances precipitated by ASIC and the ACCC and reacted to by others.

GoAutoNews Premium understands that car dealers around the country are being forced, by reduced financial circumstances, to write to various charities that they have supported, in some case for decades, and inform them that such donations will no longer be possible.

These letters are being forwarded to both Federal Members of Parliament and Senators.

Click here to access the full text of the AADA’s response.

Comment by Daniel Cotterill