A new report from the Australian Securities and Investment Commission (ASIC) slams ‘junk’ insurance and rubbish warranties, which are usually sold to consumers when they take out a credit card or personal loan or buy a car. These products are meant to protect consumers when ‘shit happens’.
But for many consumers this ‘insurance’ either duplicates a product or entitlement to which they are already eligible (e.g. their superannuation’s Income Protection insurance) or contains so many exclusions as to be effectively useless. Sometimes the insurance is bundled into a finance package, so not only does the consumer pay for something useless, they pay interest on the privilege.
Despite consumer laws and protections, it seems that many car dealers and insurance brokers are still singing from the Arthur Daley song sheet: ‘You make contact with your customer. Understand their needs. And then flog them something they could well do without.’
For a number of our clients ASIC’s report has real relevance. Our lawyers are currently dealing with several matters where clients have been sold insurance or a warranty that is either surplus to their requirements or has proved completely useless when the rubber hit the road, literally. And we’re not talking about well-healed consumers.
One of our clients is a pensioner living in a small rural town. She paid $600 for a warranty on her 2nd-hand car. A week later the transmission blew up. When she tried to claim on her warranty she was told the problem was excluded as a servicing issue and the warranty provider refused to pay. The repairs for this and subsequent ‘excluded’ problems have now cost her more than $3000.
According to ASIC’s report, consumers paid $1.6 billion in premiums. In return they received only $144 million in benefits. A nice little earner in anyone’s books.
So, where is all the money going? Well, a good deal of it is finding its way into the pockets of car dealers. ASIC reports that the Arthur Daleys of this world pocketed $602 million in commissions – ‘more than four times what consumers received in claims.’
ASIC promises that they’ve got unscrupulous traders and brokers in their sights and ‘enforcement actions’ are on the horizon. But surely there is a role for the insurance industry as a whole. Like most industry groups they’re quick to spruik the virtues of self-regulation. Well, now is the time to prove it.
Consumer Action, a specialist Community Legal Centre, is calling on insurers to refund ripped-off consumers. So far they have demanded more than $300,000 in refunds on behalf of clients who have bought junk insurance or rubbish warranties. To find out if you might be eligible for a refund, check out Consumer Action’s new website http://DemandARefund.com