“The factors identified in ASIC’s report mean that consumers are often unable to make optimal, well-informed choices when buying add-on insurance products when buying a car from a dealer. A cap on commissions does not address these issues and will not remove the opportunity and incentive for insurers and dealerships to sell consumers expensive, poor value products,” ACCC Chairman Rod Sims said.
“This proposal doesn’t help to create an environment where consumers are in control and can benefit from effective competition. It is unlikely to address these market failures or improve the industry for consumers.”
“The ACCC considers that the proposed cap is unlikely to result in a public benefit.”
“While insurers would benefit from a cap at the expense of car dealers, this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors’ costs.”
“The ACCC is also concerned that these arrangements, if implemented, could significantly delay the development of more effective solutions to the problems that ASIC has identified,” Mr Sims said.
Add-on insurance products are products that may be sold at the time of purchasing a motor vehicle. The add-on insurance may be connected to finance associated with the motor vehicle such as consumer credit insurance, gap insurance, walk away insurance, and trauma insurance. Alternatively, it may relate to the vehicle itself, such as comprehensive insurance, extended warranty insurance, or tyre and rim insurance.
The ASIC report, A market that is failing consumers: The sale of add-on insurance through car dealers(link is external), identifies issues such as a lack of price competition, poorly designed products, poor value for money relative to premiums, and a complex sales process that often did not disclose the total cost of the cover.
The ACCC expects to release its final decision in March 2017.
Source: ACCC Media Release, MR 13/17, 17 February 2017