By Daniel Cotterill on 3rd August 2017 Regulations Insurance, Payout, QBE, Rafunds

To view the QBE letter – Click here

To view the QBE Communication to dealers – Click here

INSURANCE company QBE is to offer refunds to customers who purchased some forms of its add-on insurance when they did not need it.

The insurance products were Guaranteed Asset Protection (GAP) and Consumer Credit Insurance (CCI) sold through car dealerships across Australia between 2011 and 2017.

The Australian Investments and Insurance Commission (ASIC) found that the QBE GAP insurance:

was sold where there was unlikely to be a gap between the insured value of the car and the loan balance, for example because the customer paid a large deposit
duplicated existing cover held by consumers
provided consumers with more insurance than they needed.

ASIC also says that that QBE CCI insurance was sold to young people who had no dependents and who were unlikely to need the cover.

QBE began writing to affected customers earlier this week. A sample letter obtained by GoAutoNews Premium begins: “We think you have paid for insurance you didn’t need. And if you agree, we’ll be happy to fully refund your premium, including interest”.

This particular letter is in regard to GAP insurance which covers the difference between what a car owner would be paid by their comprehensive insurance policy in the event of a vehicle write-off, and the loan balance outstanding on their finance agreement.

“After reviewing your policy, we believe there was unlikely to be a gap because you paid for more than 20 per cent of the vehicle upfront. This means your GAP insurance policy may have limited benefit or even may be unsuitable for you.”

QBE is the first of the major insurers to bow to regulatory pressure, and this may be at least in part because it has the least to lose.

In a statement issued earlier this week the company said: “While we have a relatively small market share of the add-on insurance market sold through motor dealers, we strongly support measures to improve the value, transparency and sales process of add-on insurance products.”

According to ASIC, QBE will refund more than 35,000 add-on insurance customers up to $15.9 million they paid for insurance bought through car dealerships where the insurance provided little or no benefit.

One analyst consulted by GoAutoNews Premium estimated that one of the larger players in the vehicle related add-on insurance market could have a liability of somewhere between $50 and $100 million if forced to go down a similar refund path the QBE.

GoAutoNews Premium has also obtained a copy of a letter being sent from a senior manager at QBE to various dealer principals (DPs) around the country that outlines in no uncertain terms the changing nature of their products and who they consider the target market for them to be.

To view the QBE letter – Click here

To view the QBE Communication to dealers – Click here

The letter set out the details of ‘target’ and ‘non-target’ customers and the principles that it says will underpin the sales of add-on insurance through dealerships.

“If a policy is sold and QBE identifies these principles weren’t followed,” the letter says, “then QBE will refund the customer’s premium, and it may also claim back the commission paid to you.”

The Australian Automotive Dealers Association (AADA) has come out in support of the re-design or elimination of the limited number of insurance products considered by ASIC to offer low consumer value.

“We strongly endorse the actions already taken by leading insurers in this regard,” said AADA CEO David Blackhall.

“Where the facts establish that, in the past, consumers may have been disadvantaged, we support actions being taken by the insurance industry to remedy those concerns.

“The AADA continues to work with ASIC to finalise the regulatory framework for the sale of GAP and other insurances by franchised new car dealers,” Mr Blackhall said.

QBE expects to have written to all affected customers by the end of October this year. Refunds will include an interest payment that’s designed to return customers to the position they were in had they not bought the policy.

The company has decided not to ‘claw back’ any commission it has paid to dealers for policies already sold. However, QBE is adamant that future policies must be sold in accordance with its expectations as set out in its letter to DPs.

“If a customer is sold a policy which was unsuitable for them and QBE’s expectations for the sale weren’t met, then QBE may claw back commissions for the policy sold,” reads the company’s letter.

The steps taken by QBE, and likely to be followed by others, mark the beginning of what looks to be another flurry of regulatory activity affecting new car dealers.

The Australian Competition and Consumer Commission’s draft report on its new car retailing industry market study could be released for comment as early as next week.

Murmurings in the finance industry suggest that ASIC has taken a late and drastic change of course in regard to flex commissions paid to vendors of various types of finance, and that intense lobbying and negotiations are playing out between key players behind closed doors as you read this.

GoAutoNews Premium understands that discussions aren’t going well and that legal action between the various parties is becoming more likely.

QBE says it’s Finance GAP Insurance policy isn’t suitable for all customers in its current form.

The company’s advice to car dealers says: “While it’s important you don’t provide personal financial product advice, you can still provide general advice about when it may or may not be suitable.”

QBE suggests that its Finance GAP Insurance may be suitable in the following circumstances:

The finance on the vehicle includes a balloon payment.
The vehicle is financed for a term of five years or more.
The vehicle is likely to depreciate at an accelerated rate, because of how it will be used.
The customer finances more than 80 per cent of the purchase price of the vehicle. Please inform customers that the value of GAP insurance diminishes the higher a deposit paid.
Any other circumstances where the customer decides there’s a risk of a gap occurring, and they consider the consequences of a gap occurring are sufficient for them to require insurance to eliminate the risk.

The company goes on to outline that “even if the customer falls into one of the above categories of target customers”, then other criteria that would still make them not suitable for Finance GAP include:

The customer finances less than 80 per cent of the purchase price of the vehicle (i.e. they pay a deposit of 20 per cent or more).
The customer holds an agreed value comprehensive motor vehicle insurance policy that’s adequate to cover any gap.
The customer has new for old replacement cover under their comprehensive motor vehicle insurance policy that adequately covers the customer’s risk.

“A customer must not be sold a product which exceeds their requirements,” said QBE. “The level of GAP cover they may choose should reflect the exposure they may face should their vehicle be written off or stolen. Customers are unlikely to need cover that exceeds 50 per cent of the purchase price of the vehicle.”