A consumer who argued he was “ripped off” by his insurer and its selling agent when he bought a guaranteed asset protection policy for a $31,000 vehicle loan has won his bid for a refund. 

The man said a car sales agent told him the policy was needed in case he could not work, and was the only way finance would be approved. The $1495 premium was paid from the sum borrowed. 

The policyholder told the Australian Financial Complaints Authority the sale was unfair because he was not informed the policy was optional, and it held minimal value for him because it only partly contributed to the “gap it purported to cover”. 

The man could not recall what documents were provided with the policy, sold in 2012, but he could find no information to show he was given the product disclosure statement. 

He also raised concerns that the insurer – Eric Insurance – did not disclose the amount of commission payable to the agent.  

AFCA says the man’s loan application disclosed the policy premium and referred to “shortfall ins” as part of the insurance and fees associated with the loan.

Eric Insurance said there was limited information on the sale of the policy, due to how long ago it took place. However, it provided a screenshot of a PDS that showed the policy was optional. It said this PDS was included in the financial services guide supplied with the loan documentation.  

But AFCA notes the insurer did not provide a copy of the PDS or any evidence it was given to the man.

A copy of a PDS from 2013 did not disclose that the policy was optional.  

The authority says it is fair to assume any PDS provided at the time of the sale was similarly lacking, and “it is unlikely the complainant had sufficient time to consider whether any level of cover under the policy was appropriate for his needs”.  

AFCA also notes the insurer did not disclose the commission paid to the agent – later confirmed to be 61% of the premium. While it acknowledges the high commission does not mean the sale was unfair, it may have contributed to the agent’s willingness to engage in dishonest practices.  

“The circumstances of the sale suggest the complainant was likely under the impression the policy was a requirement of the loan, as the policy schedule was issued before the complainant signed the loan documents,” an AFCA ombudsman said.

“The timing of the issuing of the policy and the signing of the documents also suggests the policy was purchased in an environment in which the complainant felt pressure to go ahead with the policy that had already been issued.  

“Based on the exchanged information, I consider, on balance, there were elements of misrepresentation, unfair sales practices and inadequate disclosure of important terms.”  

Eric Insurance has been ordered to refund the policy premium plus interest and any inflationary costs.  

Click here for the ruling.