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THE continued pursuit by ASIC of the sale of insurance and add-on warranty products by car dealerships has prompted a warning from the Australian Automotive Dealer Association (AADA) that not only is the time not right to make further changes to the way these products are sold, the need to do so has become redundant.

The Australian Securities and Investments Commission (ASIC) has decided, after four years of forcing remediation to the dealer add-on insurance business products, that it wants to flex its Product Intervention powers to continue to seek further changes to the way dealers sell products designed to protect car owners from the pitfalls that can befall them along the ownership journey.

Peace-of-mind products like extended warranties protect owners, especially of used cars, from unplanned repairs costs; gap insurance ensures they are not short changed if the value of their cars is less than they owe on it and consumer credit insurance keeps the car payments rolling in if the owners of incapacitated. ASIC’s plans to not include comprehensive motor vehicle insurance.

ASIC has taken the view that these add-on insurances should not be included as part of the car purchase on the grounds that buyers get steamrolled into signing for them. It wants the sales of these protection products to take place at another time – that these add-on protections cannot be sold with the car – and is calling for comments on its plans from interested parties.

The ASIC plan is Once a contract of sale has been signed or a finance application has been signed, dealers cannot make contact with the customer about such products for four days.

After four days the dealers will send the customer a link offering three options: Are you interested in these products; not interested in these products or send more information?

If the buyer does not come back to the dealer asking for more information or expressing interest, the dealer cannot go back to them.

If they have indicated during the sale they are interested in these protection production, then the dealer can go back to them after four days are up.

GoAutoNews Premium understands that in the UK where a similar rule has been introduced, customers are able to opt out and agree to purchase the add-on insurance products at the time they are buying the car.

The CEO of the AADA, James Voortman, told GoAutoNews Premium: “It’s going to be very difficult.  It will be a big disconnect in the sales process.”

“The last thing you want to do after spending your time purchasing a car is then, four days later, go back and sort out trying to understand these other products.”

Mr Voortman said that ASIC’s scrutiny of these products in the past few years “has had the desired effect, leading to a capping of commissions, insurers withdrawing from the market and improvements in insurance and warranty products.

“Consumers have benefitted from improved insurance and warranty products and ASIC should be commended for the role they have played in driving these outcomes,” he said.

James Voortman

Talking to GoAutoNews Premium he said: “The curious thing is that in many ways that has all been sorted. There were a lot of remediation programmes. A lot of providers withdrew from the market. There was an informal capping of commissions. So ASIC’s scrutiny that they put on the industry has actually had the effect of making sure that most of the products have been cleaned up.

“We’ve said to them that most providers have started improving their products. And if you have concerns with the products, why not go after those providers that haven’t done the right thing because, as we understand it, most of the credible insurance and warranty providers have done that work.

“We understand there are a number of providers out there who haven’t necessarily gone as far as others although ASIC haven’t named names in their conversations with us. The point they’ve made to us is that there are some outliers. The point we have made back to them is: let’s target those outliers.

Mr Voortman said that ASIC has yet to decide if it was going to pursue the four-day rule.

“It is something they have been consulting on. It’s something they’ve been flagging for four years or so.

“But we were quite surprised that they launched a new round of consultation a few weeks ago, given that dealers have a lot on their plates and are really focused on trying to keep the doors open and keep their employees with them.”

The AADA said that ASIC’s revised proposed intervention order comes at a time in which the industry is struggling amid historical declines in new car sales.

“This year, we are on track to have the worst new car sales result in two decades and the steepest decline on record. Dealers are focussed on keeping the doors open and holding onto their employees and unnecessary regulation will only compound their situation,” Mr Voortman said.

“Our members in Melbourne have been forced to close their doors and all dealers are feeling the pressure from the effects of the pandemic. If issued, this intervention order will risk further economic harm to dealers and limit their ability to sell credible insurance products to customers in need.

“Instead of denying consumers the ability to purchase reputable insurance and warranty products, the focus should be on those poorly constructed products available for sale. ASIC should target the design of these products rather than the sales process and channel through which such products are sold,” he said.

Mr Voortman said the AADA was also concerned that ASIC’s work, which is purely targeting car dealers, was a duplication of the effort being led by Treasury which is working on a whole-of-economy model.

Mr Voortman said ASIC’s process is purely focused on the car industry. It captures both dealers and salary packaging providers. So leasing companies are included.

“There is a process that’s looking at the whole of the economy that is being done by the Treasury that came out of the Royal Commission. But that’s a much more lenient process. There is an opportunity for a consumer to opt out of the four day period. But that just isn’t the case with the product intervention that ASIC has been consulting on.

We don’t understand why there’s a process being led by Treasury, which covers the whole of the economy, and then one that is led by ASIC which just looks at our industry. And our point is: let’s avoid all this duplication and let’s all just go through the one process which should be the Treasury process.

“We would hope that by aligning the automotive industry with the rest of the economy, new car dealers will be able to assist customers that have genuine need for appropriate insurance products,” he said.

By John Mellor

Branded Financial