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Consumer group investigates warranties, add-ons

The Consumer Action Law Centre has called on insurers to stop third parties selling add-on covers if they want to avoid their brands being associated with mis-selling.

“Insurers have the capacity to change and not allow this to happen,” Senior Policy Officer David Leermakers told insuranceNEWS.com.au.

The centre is holding an investigation into unnecessary add-on insurance.

It wants consumers to get in touch if they have been sold vehicle warranties through car dealers or car loan providers, unsuitable consumer credit insurance or add-on cover they were told was compulsory.

Mr Leermakers says the survey is part of a wider campaign.

“We will write two reports – one on warranties and one on other add-on insurance,” he told insuranceNEWS.com.au.

The centre will contact insurers, financial counsellors and other consumer agencies and the reports will be published later this year.

“We plan to talk to insurers about this issue and get this discussion happening,” Mr Leermakers said.

“The problem with a lot of these products is that often people don’t know they have bought them. They don’t know what they are, they never claim and they never realise the product is unsuitable.”

The centre will take a “closer look” at providers such as the National Warranty Company, which was recently ordered by the Australian Securities and Investments Commission (ASIC) to withdraw online statements that implied being regulated and licensed by ASIC would assist consumers’ claims.

Mr Leermakers says some expensive cars warranties can cost $3000-$4000 over the life of a long loan. Exclusions are common and warranties often have strict mechanical servicing requirements.

They also limit coverage to certain parts and limit how much will be paid for some components.

Some warranties, known as “discretionary risk products”, give providers absolute discretion over claims. A consumer may not be paid even if their claim is within warranty terms and conditions.

Some give less protection than people already have under consumer law, and some add-on insurance may be unnecessary. Consumer credit insurance often provides some life cover, but consumers may already have this under superannuation.

Mr Leermakers says regulators should examine upfront commissions on consumer credit insurance, as they are with life cover.

He says the centre’s campaign follows a mis-selling scandal in the UK and cases in Australia.

Allianz was recently ordered to refund $400,016 to Australians who were sold its consumer credit insurance alongside payday loans by The Cash Store. Allianz is reviewing its supervision of third parties following the case, but it insists the cover was sold without its knowledge.

In March ASIC warned it would review add-on insurance sold through car dealerships, after early investigations revealed the product may deliver minimal benefit to consumers. See earlier story.

Mr Leermakers says the ASIC review and the centre’s campaign are unrelated, although both will examine “a disproportionate amount of poor conduct where add-ons are sold through car dealers”.

Allianz GM Corporate Affairs Nicholas Scofield says the insurer met with ASIC a few months ago as part of its review.

“The review is still under way and we are just waiting to see ASIC finish it,” he said.

“If they have any suggestions as to how the products or the sales process [can be] improved, we will look carefully at those recommendations.”

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