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IT IS news to no-one that aftermarket insurance products, a previously healthy line of cream on the auto sales cake in dealerships, were until recently on the nose with regulators and customers alike.

The regulators said the policies did not deliver on the features and benefits the buyers of the insurance thought they were getting. The premiums, they said, were inflated by the commissions paid for the sales of the protection and the sales processes in many cases lacked an ethical base and there was plenty of evidence that often the wrong customer got the wrong product.

The Australian Securities and Investments Commission (ASIC) found that commissions flowing to dealer were up to 70 per cent of the premiums while the claim rates could have been as low as 10 or 20 per cent.

On that basis they were not seen as great value to the consumer.

There was so much flack that the big four players in the space, Suncorp, IAG, Allianz and QBE withdrew.

But some in the industry saw that as an overreaction and they sensed that there was still a good business for insurers and car buyers providing they got the mix right.

More dealer-focussed insurers like AWN Insurance and eric Insurance saw that car buyers still wanted coverage and protection and could still get value from protection products provided insurers rebalanced the fairness of the offering and made sure it was sold ethically.  

Both AWN Insurance, a 30-year old family business based in Brisbane specialising in warranty breakdown and roadside assist coverage and eric Insurance with roots reaching back 20 years, have spent the past few years investing behind the scenes and liaising with ASIC to get the systems and policies in place to get that mix spot on.

eric Insurance covers motor vehicle and motorcycle insurance, extended warranties, tyre and wheel insurance and equity and finance protection products.

But all those playing in that space are now facing a further challenge from ASIC which from October 5 is imposing a four-day cooling off period on the sale of all these add-on products sold through dealerships – apart from comprehensive vehicle and motorcycle insurance and third party fire and theft cover.

ASIC has gone to the United Kingdom to find a platform for what is called the Deferred Sales Model (DSM) for Australia which is in some ways more stringent that the UK system and the insurance players in the space here are keen to let dealers know that, while it might look like a speed bump in the sales process, there is a belief that dealers will soon take it in their stride as they did in the UK.

Malcolm Tilbrook

Malcolm Tilbrook, CEO of eric Insurance told GoAutoNews Premium: “We think that, with the new technology sales process that we have invested in, those products still have a place in the dealership world and can still be sold in the dealership world despite the DSM. 

“There is no question that the DSM creates a more laborious sales process than what occurred in the past because of the four day break that’s put in the middle of it but it is really just putting a pause in that sales process. 

Damian Chadwick, CEO of AWN Insurance told GoAutoNews Premium: “There is no doubt that we are experiencing a paradigm shift in our industry. 

“However, the challenges created by the DSM have and will continue to generate innovative solutions in systems and product design.

“Our concern is that the people who need our products the most have lost the ease of obtaining coverage. Our response has been to utilise technology to provide customers with a bespoke insurance offering and the convenience of additional payment options.

“We have committed to making the investment that will allow for continued research and development, with the objective of enhanced product offerings and optimised customer engagement,” Mr Chadwick said.

See: Will Deferred Sales Model hurt dealers?

While the DSM is seen as an inconvenience for the industry to have to come to terms with, it has not undermined the confidence of the players in the sector even after it took such a beating from ASIC.

Mr Tilbrook said that when all the big players pulled out of the space, eric Insurance looked at what the regulator was saying and basically “it was just the way the products were structured that was causing regulator attention and consumer angst”.

“We took that on board and decided we could either disagree with that or we could do something about it. So we chose to do something about it; change the product construct, change the price and invest in a better sales process that is more transparent for the end consumer. 

“Others have said there is a lot of investment needed to do that. So they have stepped back from the business. But we looked at the industry and, while certainly it shrank, there was no question that there was a need and that meeting that need for those products sold properly was still a good business.

Damian Chadwick

“The products effectively do two things: they either insure your equity in the asset or they insure your ability to repay the loan on that asset. 

“If you think about a blue collar worker who needs their car to get to work, if they lost their job, can they afford to miss their payments or lose a car? And if the answer’s no, you’d have to say they are a good candidate for that type of insurance. 

“Equally, if hail wrote off your car and you’ve got negative equity of $10,000, and you can’t afford to get into your next car, well that clearly is an insurable event as well,” Mr Tilbrook said. 

“So we think the policies, if they’re aimed at the right customers, have extremely good value. And, yes, we think there is a big enough business model to justify us staying in and investing about $7 million in systems to ensure that we don’t miss-sell it.”

He said eric Insurance has developed it’s Genesis sales system that gives sales staff a pathway to follow as well as an electronic record to ensure that all procedures and offers were followed within the rules.  

Mr Tilbrook said: “So we took the decision that there was good business left on the table and that’s why we pursued it.”

He said that as a result of the recasting of the policies, a very large amount of fat has been taken out of premiums and that premiums are, in some cases, 30 per cent cheaper. This has made the products in the sector more appealing.

“People can actually see value in it now.  Hence we have a bigger pool of people who are interested in it because they can afford it.

“The negative impact is that dealers’ commissions are lower, there’s no question about that. But ultimately, from the consumer’s perspective, it’s now better value. And we’re seeing customers increasingly engage with us on those products.”

Working with the regulator


Mr Tilbrook said that when eric Insurance management decided to stay in the industry it asked the question: ‘Do we fight the regulator or work with them?’.

“We elected to work with them,” he said.. 

“So we’ve actually been talking with ASIC for four years and fundamentally we stayed in lockstep with the regulator all the way through and found compromise when you need to find compromise. And they have given us a hearing along the way, in terms of trying to make this a better process for the customer.

“This is where dealers have had to evolve too. Whether they like it or not, they play in a heavily regulated world now, particularly when you’re selling financial services. You just can’t avoid the fact that regulation is here to stay and you have to work with that or give up on it. 

“And there are some (dealers) who gave up on it. But mostly they are saying: ‘Look, while we’re making good grosses at the moment, we’ve all been around long enough to know that doesn’t stay forever. So let’s get our processes right.

“And those who are saying they want to be engaged with processes, they’re the ones that are talking to us about how they make the DSM process work in their dealership,” Mr Tilbrook said.

“We decided not to fight the notion of a DSM. We read the tea leaves that it was going to come in one way or the other. So we focused our efforts on how we could make it fair to the consumer but workable inside the dealership.

“We’ve had our wins and we’ve had our losses (with ASIC). But fundamentally, I think we’ve ended up with a process that we think can still work.”

“I’d prefer for it not to be there because when you go in to buy a car, as well as the car, you’re concerned with finance and insurance. And as you make decisions about buying a car, you should be making decisions about how you are going to fund that car and how you’re going to insure that car. 

“To actually imply that you’ve got to wait four days to make a decision, I actually think is nonsensical in many respects. So in that respect, I don’t agree with the DSM. 

“But I agree that we had to do something to make it a better experience for the customer because the customer was not getting a good experience the way it was sold in the past. 

“So I look at it as a compromise in terms of trying to put the customer at the centre of the sale and making sure they are well-informed and make informed buying decisions. 

“With our sales process and disclosures of products’ features, benefits, price and payment options that consumers now have in order to make their choice, we would argue that in that environment you don’t need a DSM. But nonetheless, there is one so we’re working with that.”

By John Mellor

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