The company will continue to maintain a claims facility. This means it will maintain capital to cover any future claims until all policies have expired. This could take up to five years depending on the expiry dates across all Eric’s policies.

The move leaves AWN Insurance and its recently-purchased Sovereign Insurance Australia as the remaining key players in the aftermarket insurance space.

Since the Australian Securities and Investments Commission (ASIC) brought in new rules for the aftermarket insurance sector, which covers car owners from financial distress, most of the main insurers, like Allianz, Swann and NRMA for example, have left the field.

Eric Insurance tried various sales models but found dealers saw it as too difficult to navigate the sales process.

The rules, which delay the finalisation of add-on insurance sales by at least four days, meant that even if a buyer says they want the add-on insurance protection on a Monday, they dealers were not allowed to finalise the deal until the following Saturday.

The intention of the rules was to take the pressure off add-insurance sales to give buyers time to inform themselves whether the products suit their circumstances or not. But it has become apparent that the car buyers who most need the protection from unforeseen funding or breakdown issues covered by add-on insurances, are not able to fund the protection premiums because the four-day delay is preventing them from including the cost of the add-on insurance in their finance package.

A person familiar with the Eric Insurance decision told GoAutoNews Premium: “After the ASIC intervention the specialised or add-on insurance market became a very difficult space.

“The deferred model made it difficult to sell. Eric Insurance looked at a couple of different alternatives in terms of how they go to market, but I think it just got too hard and they’ve gone into runoff and they’re not taking new business anymore.”

The insider said that the deferred sales model “was 100 per cent responsible” for making the consumer protection insurance hard to present to buyers.

“It made selling these products very difficult. No question.

“The deferred sales model was a very difficult model to operate in. There was so much rigmarole. I think that the dealers just decided that it was all too hard for the amount of money they could make. 

“When a customer was buying a car, you couldn’t sell them a policy right there and then and had to wait up to five days before approaching them for insurance. 

“The customers had already done the deal on the car and they really wanted to know what their finance deal looks like there and then. So you could not go back and add it later on. 

“It became a very difficult proposition for the insurance companies and the dealers at a time when the dealers are looking to shorten the time in dealerships not lengthen it by going backwards and forwards. It became a very difficult proposition. 

“Ironically, ASIC seems to have taken an approach which, rather than helping the consumer, it actually means that fewer people are actually offering these policies.

“Yet, when sold correctly, protecting either your equity or your ability to make the repayment seems a genuine insurance category that serves a proper purpose for the public. 

Damian Chadwick director AWN and CEO of Sovereign told GoAutoNews Premium that Eric Insurance going into run off reduces viable opportunities for dealerships seeking the benefits of insurance policies.

“I think it is hard to argue that the Deferred Sales Model (DSM) wasn’t a contributing factor in their decision, however, I am not close enough to Eric Insurance to make a comment on that. 

“But at a high level, I can say that the DSM has impacted the sale of insurance in several retail markets in Australia, and it has been a legislation that many have chosen to walk away from rather than face. 

Damian Chadwick

“The DSM presented a challenge to established insurers that conflicted with conventional wordings, systems and processes. Insurers invest millions of dollars in bespoke systems that calculate and bind insurance policies, and a reduction in agent commissions and additional layers of oversite did not provide many with confidence they would see a return on the required investment.

“AWN insurance was a Insurtech provider long before the term became fashionable. On assessment of the new legislation, our observations were that the solution would be a complex rebuild from the ground up. Among the several changes we introduced included the introduction of new products with simplified wordings, system upgrades adopting sophisticated AI modelling and customer interfaces with subscription payments.   

It was clear to our executive team from day one that a band-aid solution was a waste of time and that we needed a strategy to exceed the benchmarks set by the new legislation; while maintaining a commercially viable business. It wasn’t cheap, and it wasn’t done quickly, so we are confident it will be good!

“I am not sure we can say that we have found the solution just yet, however, we have embraced the change in narrative and made the commitment of continuous improvement. 

“It is important to me as the CEO of Sovereign Insurance that I make it clear to the market that we are here to stay. In the uncertain economic times that lay ahead for many Australians; I feel access to quality Insurance has never been more important.”

Asked what AWN did to take on the challenge of the ASIC rule changes, Mr Chadwick said: “I think we are a nimble organisation that had the foresight to diversify our revenue over multiple industries and several countries which mitigated the initial financial impact of the DSM. 

“This gave me as the CEO the opportunity to make quality decisions about the long-term direction of the company. I must admit the acquisition of Sovereign Insurance and a credit company in the middle of a pandemic raised a few eyebrows of some of our shareholders.

“For years we have been the quiet achievers and I don’t think most appreciate the size and reach of our organisation. Much of the business we are engaged in is white labelled, fronted or are overseas programs, so you can be forgiven for assuming we are a small warranty company. 

Mr Chadwick said the big difference with AWN and Sovereign Insurance and the other players was that “fundamentally we accepted the new rules, we understood the gravity and financial commitment of the required adjustments and we committed completely to the required changes. 

“Sounds simple when you say it now; however this was a real test for our organisation and we had no misconceptions that the outcome needed to be commercially viable for our agents. 

“We left no stone unturned. We questioned the merit of our pricing algorithms, every system and every policy clause. 

“A key focus was the customer experience at the time of claim. We implemented a call recording system that converts digital recording into scripted documents that are read by AI systems to review tone, vernacular and score the conversation. If a call is flagged due to any of the preset KPIs it is reviewed by our quality control and IDR team and escalated to management if found to be substandard. 

“The work my team delivered is testament to why Sovereign Insurance is growing at such an impressive rate.

“We are disappointed to see an insurance company enter run off. I personally know members of the Eric management team and board; we wish them all the best”. 

Some have referred to it as a changing of the guard, but regardless of how you look at this transition, AWN Insurance and Sovereign Insurance have embarked on a campaign to elevate the reputation of automotive insurance and have taken the first steps as a challenger brand in a number of other markets,” Mr Chadwick said.

Eric Insurance told GoAutoNews Premium that the company was not in a position to comment.

By John Mellor