The ASIC reforms have made a significant impact to the income of car dealerships. Automotive Holdings Group Ltd (AHG), Australia’s largest car retailer, estimated that the impact would cost it $15 million in the current financial year’s earnings.
However, the heat is on insurance companies – not car dealerships – to repay money to customers who have been deemed to have been overcharged or coerced into buying insurance products that may not have been necessary.
The Australian Automotive Dealers Association (AADA) CEO, David Blackhall, told GoAutoNews Premium that while his association had no indication that the insurers intend to repay commissions, “it is difficult to imagine how a case might be mounted to recoup commissions from dealers who sold products designed by the insurers under compensation schemes devised by and deployed by those same insurers”.
Mr Blackhall said the effect on dealers’ incomes came as no surprise. He said the AADA had been working with ASIC for more than 18 months on this issue including senior finance and insurance experts drawn from the AADA membership.
“The planned modifications to the products by the insurers and the proposed regulatory changes have therefore already been taken into account by our members in framing budgets and corporate plans,” he said.
“The overall impact of the new processes and products is impossible to assess yet, but guidance from the listed automotive entities published last year should be taken as indicative.”
Mr Blackhall said that throughout the review period, ASIC’s focus “has always been on improving product design, and discontinuing inappropriate products as well as eliminating poor sales practices where they exist in the dealer networks”.
But he said that while many products were being eliminated, there was still a case for some insurance products – specifically Guaranteed Asset Protection (GAP) and Consumer Credit Insurance (CCI).
“It is important to note that CCI and GAP can still be sold in appropriate circumstances and indeed should be sold where customers’ best interests are protected by these offerings,” he said.
KPMG national leader of motor industry services Wayne Pearson said insurance products were never a major income source for most dealers but he said it was an additional drain on dealership revenues.
“On top of the impact of finance income changes and the pressures on gross generally across the business, it is really death by a thousand cuts for the profits of many dealers,” he said.
“Personally, when I owned my dealerships, we had a lot of very happy customers whose lives were very positively impacted by being able to make a claim in a time of need, so we saw the real positives in these products.”
However the ASIC investigation found that high-pressure sales techniques were used to gain high commissions from insurance sales.
In a three year period, ASIC found that consumers paid $1.6 billion in premiums for these add-on insurance products but the claims resulted in only $144 million – a ratio of just nine per cent.
Dealers who sold add-on insurance products received four times as much money as the claims made, ASIC said.
ASIC in August last year announced that QBE Insurance would refund $15.9 million to 35,000 add-on insurance customers. It said in these cases “the insurance provided little or no benefit”.
Allianz this week agreed to pay back $45.6 million in compensation to more than 68,000 customers while Suncorp agreed to $17.2 million and Swann Insurance ($39 million).
Add-on insurance products will also be included in a submission to the banking royal commission made by the Consumer Action Law Centre.
Royal commissioner Kenneth Hayne has focused on at least eight insurers, including QBE, IAG, Suncorp, Allianz Australia, Zurich Australia, Westpac Insurance, CommInsure and ANZ’s One Path Insurance.
By Neil Dowling
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