LEADING Australian add-on insurance provider, AWN Group (AWN), has acquired Perth-based Sovereign Insurance Australia (Sovereign) as part of a strategy to bring much needed innovation to the automotive insurance industry which has been inhibited by the so-called Deferred Sales Model (DSM) introduced by the regulator, ASIC.

The DSM rules effectively prevent a dealer from selling add-on insurance once a customer has agreed to buy a car. Dealers are banned from selling the product for five days after the agreement to buy the car is made.

This means that many of the consumers who need insurance cover the most are not being introduced to the benefits of GAP, CCI and other add-on insurance protection.

AWN Insurance says that too few people have taken the protection they need because the new rules are proving to be a disconnect in the sales process. With rising interest rates and inflated vehicle prices, many consumers are likely to face financial challenges that could have been prevented by insurance coverage, the company says.

Under AWN Insurance’s new digital model, car buyers are being offered various insurances for a complimentary period of 30 days. This ensures they have cover during the deferred period and it provides buyers extended time to consider the coverage benefits or other available products.

Towards the end of the 30-day period the customer is presented with a digital invitation to renew the policy. However, they are not obliged to do so.

Last October, AWN Insurance announced its new digital model for GAP insurance. The acquisition of Sovereign by AWN now means that the new model can be extended to all AWN Insurance products; as well as other new products GoAutoNews Premium understands are in the pipeline.

The CEO of Sovereign Insurance, Damian Chadwick, told GoAutoNews Premium: “Business managers are often the only exposure that a buyer has to understand the benefits of add-on insurance. Unfortunately, an unintended side effect of the DSM has been that the flow of that information to the buyer has been cut off.”

Mr Chadwick said: “We believe passionately in the protection of Australian consumers. We are absolute in our belief that, given a choice, consumers will see the value in our products.

“While I am disappointed to see other providers concocting elaborate schemes to get around the DSM, our position is that we have committed to our strategic partners a program that will give the buyer the time and information they need to make an educated choice regarding quality insurance products, and then provide an affordable payment method outside of traditional finance.”

“At the expiration of the complimentary period, if the consumer chooses to renew or enhance the insurance with us, they’re more than welcome to. If they decide it’s not for them, there’s no obligation, and the coverage expires.

“Importantly, we are not selling insurance; we are giving the consumer the option to buy insurance! There is a fundamental difference. Our model insulates not only the buyer, but the dealer and the finance company also benefit from this coverage while the customer is making an educated decision,”.

Mr Chadwick said that the AWN Group is more significant than many people realise. Many of of its products are white labelled and our operations span several territories, including Australia, New Zealand, North America and Europe.

“With the acquisition of Sovereign, we are making a statement that viable and compliant insurance options are still available in the automotive space.

He said the new digital model and the acquisition were developed over the past 36 months.

“COVID was a wakeup call, the Deferred Sales Model also a wakeup call. However, many of our peers are still in a slumber.

“At the end of the day, the industry needs a fresh start. We need a new way to look at insurance and focus on protecting the consumer and providing greater value. After all, today’s consumers are also the consumers of tomorrow, and we all have a vested interest in the financial health of vehicle buyers.

“AWN Insurance makes no apologies for putting the customer first and foremost.”

Mr Chadwick said the company intended to “reward dealers fairly for a compliant transaction”.

“To make this possible, we have streamlined our operations and invested heavily in digital processes. This allows for optimal utilisation of premiums, which translates to improved products with higher loss ratios for consumers and viable returns for agents.

“Sovereign insurance is the missing piece the AWN Group has been looking for for the last 30 years. Due to the relationship, AWN Insurance is now in a position to write and issue a range of innovative new products that will set new benchmarks in our industry.
“This is a completely new way of thinking for the marketplace. However, we feel it’s a change that has to happen. I believe we have a model that will put the “I” back into F&I. There’s absolutely no doubt about it, and our strategic partners agree,” Mr Chadwick said.

“It should come as no surprise that we have taken this step,” he said.

“We have been preaching the benefits of insurance for years. There is a falsehood in the industry that non-insurance products are on the same footing as insurance products, and this is just not the case.

“An administrator of service contracts has no obligation to provide for the payment of claims or running costs. An AFSL provider has to provision for three months but a regulated insurer provisions for the life of the contract as well as seven years of statutory limitation and a 1-in-100-year event (like Covid). The insurer’s provisioning is conducted by external actuaries and is approved and audited by third parties.

“This is why AWN Insurance has always been supported by regulated insurers, and we now continue those relationships as reinsurance partners, giving AWN Group direct access to A-rated insurance paper and an abundance of capital.”

Mr Chadwick said: “2023 is going to be a challenging year for the motor industry, and we are already seeing the warning signs. I believe the growth of our industry will be underpinned by product innovation, AI and diversification.

“I don’t believe there are any shortcuts and I warn against avoidance strategies. There is a substantial difference between general insurance and membership schemes or miscellaneous financial products that ultimately expose consumers and dealers.

“While warranty has some viable crossover, in my professional opinion, products like Gap, CCI, and loan protection do not; there should be no doubt that they are insurance products!

“For those who care to research, there is a fantastic actuarial paper called “Deep Fried Bananas”. I know it’s a silly name; however, the paper provides an insightful education on the benefits of insurance and how easily great products can be compromised,” Mr Chadwick said.

By John Mellor