Action on credit insurance

AUSTRALIA’S corporate watchdog has threatened to take “significant enforcement action” after a sweeping review found credit insurance is “extremely poor value” and has consistently failed consumers.

The Australian Securities and Investments Commission has announced findings from the review, started in 2017, into consumer credit insurance sold by 11 banks and non-bank lenders.

Such insurance is marketed as a safety net for people who fail to meet repayments on their loans or credit contracts under certain circumstances – such as if they lose their jobs, fall ill or are injured.

The watchdog’s review found that for every dollar in premiums paid, consumers were receiving just 19c back through claims.

For insurance sold with credit cards, the payout rate was even smaller: 11c for every dollar in premiums paid.

ASIC put the industry on notice and said that if it did not lift its game, it would use its new “product intervention power” to bring about change.

Consumer credit insurance, or CCI, came under scrutiny in the banking royal commission, where the limited value of the product was laid bare.

Commonwealth Bank chief Matt Comyn told the royal commission his predecessor and former boss, Ian Narev, ordered him to “temper his sense of justice” when he suggested abolishing the junk insurance products.

“We are deeply troubled by the findings in our report, and the stories they tell of unfair practices occurring within Australia’s largest and most well-known financial institutions,” ASIC commissioner Sean Hughes said yesterday.

“Lenders and insurers have had more than enough time to improve sales practices and provide better value for consumers.

“An inevitable consequence of these widespread failings and mis-selling practices will involve ASIC taking significant enforcement action against some of the entities named in our report.”

Announcing its broad findings yesterday, the watchdog did not single-out products or institutions. But it said the review covered all seven big banks and regional lenders, the Commonwealth Bank, Westpac, ANZ, National Australia Bank, Bendigo and Adelaide Bank, Suncorp and Bank of Queensland.

It also covered major credit unions People’s Choice Credit Union and Credit Union Australia, along with Latitude Financal and US bank Citigroup.

ASIC said it was investigating the alleged misconduct of several companies in the consumer credit insurance market as it pressed ahead with expected enforcement action.

The defendants to the action would be “publicly identified” at the time proceedings commence, the regulator said.

“If we do not see early, significant and sustained improvement in the design and sale of consumer credit insurance, our next steps may involve the deployment of our new product intervention power where we see a risk of significant consumer detriment,” Mr Hughes said.

“We also will not hesitate to pursue civil penalties.”