ACCC swings axe against dealer commission caps

ACCC swings axe against dealer commission caps

Rod Sims

The Australian Competition and Consumer Commission (ACCC) wants to deny authorisation to 16 insurance companies to agree to a cap of 20% on commissions paid to car dealers who sell their add-on insurance products.

The ACCC considers that the proposed cap is unlikely to result in a public benefit.

The Australian Securities and Investments Commission (ASIC) report, ‘A market that is failing consumers: The sale of add-on insurance through car dealers’, found that consumers are being sold expensive products that often provide little to no benefit.

ASIC said these add-on products, such as tyre and rim insurance and loan termination insurance, are sold in pressurised sales environments, attract high commissions and create conflicts of interest.

The report covers a three-year period of review. During this time, consumers paid $1.6 billion in premiums but received only $144 million in successful insurance claims. This represents a claims payout of just 9%.

In contrast, car dealers earned $602 million in commissions, with rates as high as 79%.

“The factors identified in ASIC’s report mean that consumers are often unable to make well-informed choices when buying add-on insurance products when buying a car from a dealer,” ACCC chairman Rod Sims says.

“A cap on commissions does not address these issues and will not remove the opportunity and incentive for insurers and dealerships to sell consumers expensive, poor value products,” Sims adds.

The ACCC also believes that the arrangements, if implemented, could significantly delay the development of more effective solutions to the problems that ASIC has identified.

Background

Add-on insurance products are products that may be sold at the time of purchasing a motor vehicle.

The add-on insurance may be connected to finance associated with the vehicle such as consumer credit insurance, gap insurance, walk away insurance, and trauma insurance.

Alternatively, it may relate to the vehicle itself, such as comprehensive insurance, extended warranty insurance, or tyre and rim insurance.

ASIC identifies issues such as a lack of price competition, poorly designed products, poor value for money relative to premiums, and a complex sales process that often did not disclose the total cost of the cover.

The ACCC expects to release its final decision in March 2017.

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