The so-called Deferred Sales Model is being introduced into Australia from October 5. It means that dealers cannot close deals on sales of add-on insurance and warranty products until four days have elapsed in order for buyers to have time to avoid being pressured into products they don’t want or may not suit their circumstances. 

Many dealers fear that there will be a significant loss of deals after the four-day pause. 

But, in the UK, where these products tend to be confined to Guaranteed Asset Protection insurance (GAP), the backing out of deals was not as great as first feared. 

Figures from the UK’s Financial Control Authority (FCA), which instituted the four-day Deferred Sales Model (DSM), showed that total GAP insurance sales fell from just under 1.1 million a year before the FCA intervention to just over 1.0 million a year  after the intervention which started in September 2015. This was a fall of around 9 per cent. 

Total GAP insurance sales returned to just under 1.1 million a year in the 12 months leading up to August 2017 although there is a suggestion that an increasing number of GAP policies were sourced outside dealerships.

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

Come October 5 the DSM will change the relationship between the motor industry and providers of add-on insurance. 

“Dealerships and finance brokers will now take on the role of referrers and insurance providers will be tasked with meeting the enhanced conduct risk challenges that will be required for a compliant sale of add-on insurance.

Damian Chadwick

“I think there is something to be learned from the outcome of the UK DSM. It demonstrated that with the right systems and processes, we can reduce the initial impact, and with continued education and product enhancement, it is viable to increase insurance sales under a DSM model.

“We have and will continue to commit funding and resources to support our agents with training, education, systems and product enhancements which I believe are vital as the motor industry evolves to meet this challenge,” Mr Chadwick said.  

Malcolm Tilbrook, CEO of eric Insurance told GoAutoNews Premium: “We could see the Deferred Sales Model coming. So we went had a look at how it was managed over in the UK and then we started building systems and processes and making changes to our products to anticipate what was coming. 

“The DSM changes the process of selling a car. You cannot close a sale of any of the specialised products until four days after the commitment to purchase the car or the commitment to get a loan.

“So dealers want to know how we can fit (this new arrangement) into their process or how their process can fit into the insurance. We are saying to the network, we’ve got a process, we’ve got products that suit and we think dealers will be able to go on presenting these products to end consumers post the DSM in October.

Malcolm Tilbrook

“Dealers are asking: How do they deal with someone who comes in and buys a car, and they deliver it inside four days.  They cannot finance the premium into the loan, and we acknowledge that that can’t be done. 

“So we’ve come up with a few things. One is you can deliver the vehicle with the finance complete and then write the insurance using pay-by-the-month after the deferral period has ended which is a normal way of paying for insurances anyway. 

“And the other thing that’s playing to our favour at the moment is delivery dates will exceed four days on just about everything at the moment and dealers think that that still has some time to play out.”

Mr Tilbrook said that many financiers are still saying they will finance add-on insurance products.

“We are giving lots of payment alternatives. So we’ve got insurance premium funding, pay-by-the-month and finance within the car loan. And we are currently looking at buy-now-pay-later as well,” he said.

By John Mellor