From October 5, onerous new rules have been introduced where not only must there be a four-day deferred sales period on the sales of these add-on insurance products but dealers have to obey what could be seen as bizarre rules where personal contact and conversations with customers regarding add-on insurance are limited to written outbound communications.

The focus is on limiting as much as possible any opportunity for dealer business managers to talk customers into buying these products and, by limiting sales discussions to emails and text messages, remove the sales pressures that can be brought to bear in direct conversation

Strict rules also apply to add-on insurance conversations for up to 6 weeks before dealers then run into further contact prohibitions under anti-hawking laws.

Damian Chadwick, CEO of AWN Insurance, told GoAutoNews Premium: “Digital customer communication for dealerships has never been more important. While the challenges of Covid-19 has seen many embrace new digital methods for vehicle sales, the DSM will see a similar approach required for add-on insurance”.

Damian Chadwick

The clampdown applies to car dealers that engage in the sale of the car and finance providers providing finance facilities. Any other parties not related to the sale or finance of the specified car to a customer – are able to sell these add-on products, as long as the customer was not referred to them by a party involved in the sale.

The Australian Securities and Investments Commission (ASIC) has taken these steps in response to observations of the Haynes Royal Commission which highlighted poor sales practices and products that were once sold through car dealerships, and the clear intention of the regulator is to encourage players other than car dealers to get into the add-on insurance market.

During the process of setting the new rules, the insurance industry made several submissions to ASIC regarding approaches that would create a more balanced and fair business model. 

However, the regulator came under huge pressure from consumer activists which were wanting as a starting point, a complete ban on dealers selling these products at all.

Or, if they were to be allowed to continue to sell these products, the consumer activists wanted them to be sold with no commission for the dealers.

The new rules are based on a set of regulations introduced into the market in the United Kingdom in 2015 although the regulations in the UK which apply mostly to GAP insurance policies are far less onerous than those adopted by ASIC here.

Mr Chadwick told GoAutoNews Premium: “We were closely watching the events that took place in the UK. The communication from our European partners was that while the sales of add-on insurance definitely dipped at the introduction of the DSM, they bounced back. However, not all of that business returned to the dealers. Several online companies took advantage of the opportunity the DSM created”. 

“Healthy competition is good for the market; however, we want to make sure our agents have a fighting chance. So, we have designed the foundations of a digital, customer-centric platform that puts the customer in the driver’s seat. I say foundations because as our system is being released, our developers are already working on version 2.0; the product of months of consultation with our agent network”.

“While we passionately believe that technology is the solution to this challenge, product design will also play a substantial role. In response to the regulator’s design and distribution obligations (DDO), we are obsessed with designing insurance products that customers want to buy, rather than have to be sold”.  

“The third pillar of our strategy is training. We have engaged the services of a specialist training company that is working with our account managers and agents on skills and techniques that focus on a digital sales environment.”

“I am encouraged to see that other add-on insurance providers have taken the same stance in providing the industry with solutions that work in harmony with the DSM. It is going to take the combined support of add-on insurance, vehicle financiers and system providers to give dealers the ammunition to remain competitive”. 

Mr Chadwick said “most communication experts agree that 70 to 93 percent of all communication is nonverbal. So, I am confident we will get our insurance message out to customers, even without verbal offers, requests and invitations after day zero”.

By John Mellor