If you have ever taken out a home, car, credit card, or personal loan, you might have been unwittingly sold consumer credit insurance (CCI), a type of add-on insurance meant to protect the consumer in case an unexpected circumstance causes them to be unable to complete their payments.
Even though this form of insurance is quite common in many policies and premiums, the Australian Securities and Investments Commission (ASIC) has received a number of complaints regarding CCI, identifying potential breaches of the law where this form of insurance fails to deliver honesty, efficiency, and fairness to the consumers.
In this article, we will examine the definition of CCI, its potential concerns, as well the expectations held for this form of insurance in the future.
What is CCI?
Consumer credit insurance (CCI) is a form of add-on insurance that is meant to protect consumers in unexpected events such as involuntary unemployment, disability, accident and sickness, and death. The CCI premium, along with the length and amount of cover, are connected with the particular loan, with every policy having unique limits, features, and exclusions.
Important details of the specific policy can be found in the Product Disclosure Statement or Policy Schedule, which should be provided with each loan sale. Although CCI might be difficult to find, it can be located in places such as loan contracts and statements, bank statements, and credit card statements.
What are the concerns?
While consumer credit insurance might be useful and important for some, this type of insurance presents a number of reoccurring issues. One of the most notable problems are harmful sales practices, where dishonest salespeople add CCI to a loan without explaining what it is or how it operates, especially in cases where such insurance serves no practical use to the consumer.
Furthermore, CCI premiums tend to be exceptionally expensive, often including high interest charges that tend to outweigh the costs of premiums. In addition to providing low claims ratios, approximately 9 cents on the dollar, CCI claims are frequently rejected as well, due to deceitful policy exclusions and the difficulty of making a claim, thus often resulting in withdrawals.
Can you get a refund?
In case you have unwittingly purchased consumer credit insurance as well, you might be entitled to a full refund of the foregoing costs. This can often result in compensations as high as several thousands of dollars, particularly when it comes to loans and policies where honesty and transparency were evidently lacking.
In that case, the best course of action might be to hire the services of an experienced professional who will allow you to establish your claim on a ‘No Win No Fee’ basis. This means you will have the support of successful industry experts, along with the security of knowing you won’t have to make any payments in case your claim is unsuccessful.
Why now?
Consumer credit insurance has been on the agenda for decades, with ASIC taking up responsibility in 2010, and issuing its first report the following year. However, the most recent project began in 2017, including 11 lenders and their insurers, and has resulted in a detailed 2019 report, as well as targeted investigations aimed at enforcing action and remediation.
With the aim of bringing transparency and rectification to the issue, the report found CCI to be products of poor value sold under harmful sales practices, thus raising awareness of the issue and leading many Australians to enforce claims.
New expectations for CCI
Using its new Product Intervention Powers, the report issued by ASIC also clearly states future action that needs to be taken regarding CCI, as well as specifically referring to how Distribution Obligations and Product Design will support the implementation of these new expectations.
Among others, expectations regarding product value and design might be most important for consumers. Claim ratios now must be higher, benefits have to reflect consumer needs, lenders have to assess products before selling them, and products need to be unbundled so that sections can easily be chosen.
Sales practices have to be improved as well, with no unsolicited phone sales and hard filters on eligibility, while requiring clear, positive, and informed consent. Including the enhancement of post-sale conduct, continued coverage now has to be confirmed, premiums mustn’t be charged for unavailable covers, and annual communication and reminders about limits, prices, exclusions, and potential relevant claims need to be maintained.
Evidently, consumer credit insurance has had a difficult and troubled past, often being sold in dishonest and unfair ways. Hopefully, with new guidelines, expectations, and a raised awareness, the sale of CCI will become more transparent and sincere in the future.
