Car buyers to be refunded for dodgy cover
TENS of thousands of Australians are about to pocket a refund for car yard add-on insurance, and it's worth checking if you're owed some money.
If you've purchased a car or motorbike through a car yard in the last ten years, chances are the dealer offered a range of insurance options that went way beyond comprehensive cover.
For some years motorists were being flogged a whole smorgasbord of insurance by car yards. Yet many policies did little more than take car buyers for a ride while filling the coffers of insurance companies and lining the pockets of dealers, who could earn commissions of up to 75% of the premiums paid.
Money watchdog ASIC uncovered some very questionable practices. Like drivers being sold policies they weren't even eligible to claim on, and car buyers aged under 21 being sold life insurance alongside their new car.
Adding salt to the wound, the pay-out ratios on some of these policies were dreadful. According to ASIC, across car yard life insurance products, only $6 million was paid out in claims over a five-year period - a tiny fraction of the $90 million collected in premiums.
These practices didn't escape the notice of the Banking Royal Commission, which recommended that car yard add-on policies should only be offered after consumers have purchased the car - not on the day they sign up for the vehicle.
That makes sense. ASIC's investigations found car buyers often face 'information fatigue', where they're so overloaded with different options that it's hard to make a reasonable decision.
In the meantime ASIC has been pushing for refund programs from the insurers involved.
Already over 200,000 car buyers have been compensated for premiums paid on a range of car yard add-on policies, which have been found to be pretty much worthless. In the past week, ASIC announced additional refund programs worth $14.7 million from six different insurers.
The refunds should filter through to 30,000 car buyers. But if the situation sounds familiar don't just wait for the money to arrive.
Check your car or motorbike purchase contract to see if add-on insurance was included. Policies to look for are typically called GAP (Guaranteed Asset Protection), Consumer Credit Insurance and Mechanical Breakdown (or Extended Warranty) insurance. If any of these ring a bell, contact the insurer involved.
If you're buying a car in the near future, the pressure to buy add-on insurance may not be so intense. A number of insurers have left the industry altogether, and dealer commissions have been lowered in a bid to reduce high pressure sales tactics.
Ultimately though, if you start to feel the heat to buy more than just a car, it could be time to rethink the deal.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.