By Daniel Cotterill on 27th April 2017 Regulations Allianz, ASIC, Insurance

PRESSURE from regulators has seen a major insurance company take preemptive action designed to ensure that various forms of highly profitable add-on insurance can remain on sale through car dealers.

In a confidential bulletin obtained by GoAutoNews Premium, insurance giant Allianz has outlined a series of drastic changes that will see some premiums slashed by up to 57 per cent while certain products, including business loan protection insurance, tyre and rim insurance and used vehicle warranty insurance, have been withdrawn from the market altogether.

The insurance industry and car dealers have been under sustained pressure from both the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) over so-called add-on insurance products.

ASIC published a highly critical report in September last year detailing its concerns over the sale of add-on insurance through car dealers that included high levels of commissions, low claims ratios, high pricing, poor policy design and questionable sales practices.

The Allianz bulletin spelt out the company’s expectation that premiums will reduce on average by 34 to 57 per cent on their range of add-on insurance products including loan protection, extended warranty, value protect insurance and motorcycle equity insurance.

The company has also moved to reduce and cap the commissions it pays on value protect, motorcycle equity and extended warranty insurance to 21 per cent, while all other existing volume bonuses and incentive programs will be discontinued from July 1 this year.

Commission levels for motor vehicle insurance, motorcycle insurance and loan protection insurance products will remain unchanged. The level at which such commissions are paid was not specified.

The Allianz bulletin says: “The changes outlined…are being made independently by Allianz following ASIC’s engagement with Allianz directly to address concerns and to provide better customer value.

“Importantly however, as a result of the changes, we expect to be able to continue to sell add-on insurance products at the point of sale thereby ensuring our partners can continue to meet the needs of customers.”

Dealers have been advised that they will received their new agency agreements within the next two weeks and are being encouraged to sign and return that document as soon as it is received.

Allianz stipulates that a signed agency agreement will need to be returned to them no later than May 31 if dealers are to maintain access to their add-on insurance products past July 1 this year.

GoAutoNews Premium understands many dealers, including at least one large and influential dealer group, are refusing to sign a new agency agreement until the revenue share details under the new arrangements are clearly spelt out.

Click here to access a copy of the Allianz bulletin.

Several other Allianz products will be modified or redesigned to varying degrees including more than doubling the cooling off period for all add-on insurance from 14 to 30 days.

Allianz is also seeking to tidy up sales practices around its products via a sales training and accreditation scheme.

The bulletin specified that: “There will be a number of changes made to the Allianz Advantage Training Academy sales scripts and course materials which will include references to compliance checkpoints in the new Allianz Access system, reinforcing disclosure requirements and highlighting the requirement to avoid pressure sales tactics when selling add-on products.

“We will also introduce two new compulsory eCampus courses in 2017. One will focus on sales process and conduct training and the second will cover the new life code requirements for Loan Protection Insurance sales. All accredited agents of Allianz will need to pass these courses in eCampus and sit for recertification every three years.”

Notwithstanding Allianz’s unilateral move, work continues at an industry level via a number of working groups to address various issues relating to product design and sales practices which includes the potential introduction of a ‘deferred sales model’.

A further issues paper is due to be released by ASIC to those working groups later this month or early in May with recommendations going forward to the ACCC soon after. A decision on the matter is expected in June.

An ASIC spokesperson declined to comment on the Allianz bulletin. Extensive comment from the Australian Automotive Dealer Association is included in a separate story.