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Add-ons: insurers to repay another $14.7 million

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Six insurers will repay $14.7 million to consumers who purchased poor-value add-on insurance at car yards, the Australian Securities and Investments Commission (ASIC) said today.

Coming on top of refunds announced last year, the payments bring the total value of remediation to more than $130 million.

Under the refund programs announced today:

- Aioi Nissay Dowa Insurance Company Australia will refund $7.2 million to 16,596 customers. It sells insurance products under the Toyota brand

- Eric Insurance (formerly AVEA Insurance) will offer refunds of $3.37 million to 5232 customers

- Sovereign Insurance Australia has offered refunds of $1.37 million to 1858 customers

- Virginia Surety Company will refund $1.7 million to 4026 customers

- LFI Group (insurer for Liberty Finance) has offered refunds of $951,700 to 2001 customers

- Underwriting agency NM Insurance and three insurers – Hollard, AAI (Suncorp) and AIG – will collectively refund $143,700 to 287 customers.

“Many people who bought a car or motorbike with add-on insurance may be entitled to a refund,” ASIC Commissioner Sean Hughes said.

“The failures highlighted by these insurers demonstrate why new design and distribution obligations – passed by Parliament in March 2019 – are so important.

“ASIC will continue to monitor this sector to make sure the unfair practices of the past do not return. However, the industry has a key role to play in this too.”

The refunds address ASIC concerns with guaranteed asset protection (GAP) insurance, consumer credit insurance (CCI), and mechanical breakdown insurance (also known as extended warranty).

ASIC discovered insurers were paying commissions as high as 80% to car yards, and many consumers were unable to claim on the policies.

Commissions have now been cut to 20%, and the value of claims paid compared to premiums has increased.

Car dealers also check the customer is eligible under the policy before it is sold, and some insurers have pulled out of the add-on market.

ASIC is currently reviewing the sale of consumer credit insurance by banks and other lenders and will publish a report shortly.