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ASIC forces credit insurers to repay consumers

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The 11 lenders providing consumer credit insurance (CCI) in Australia have been ordered to undertake a large-scale remediation program for more than 300,000 customers.

The exercise ordered by the Australian Securities and Investments Commission (ASIC) is expected to cost the companies at least $100 million.

ASIC says product manufacturers need to drastically redesign consumer credit insurance (CCI) policies after it issued a damning report last week setting out tough new standards for the sector.

It wants insurers to improve claims ratios from the current level of 19 cents in the dollar, provide proper benefit assessments, including payments for periods of unemployment rather than arbitrary limits, and unbundle CCI from credit cards so consumers can select cover they are eligible to use.

Insurers should not charge premiums for CCI where primary benefits are no longer available, should provide annual communication about prices, limits and exclusions, and contact customers every two years asking whether they want to keep or cancel their cover.

They should also record the number of withdrawn claims and halted claims.

ASIC warns that without immediate and sustained improvement in the design and sale of CCI, it will use its new product intervention powers to stop sales and pursue court action against insurers and lenders.

The report details instances of CCI being sold to consumers who were ineligible to claim or unlikely to need the cover, plus pressure selling and unfair sales practices. It also records examples of consumers being provided non-compliant personal advice.

And the regulator plans to ban unsolicited sales calls for CCI.

“ASIC expects lenders and insurers to meet these standards or cease selling CCI until they do.”