ASIC Deputy Chair, Peter Kell, talks about why QBE needs to refund $15.9 million dollars to 35,000 of its customers.
Introduction: QBE to refund 15.9 million to its customers
Ross Greenwood: One of Australia’s largest insurance companies, QBE insurance has today indicated it will refund more than 35,000 customers, up to 15.9 million dollars. This is in regard the car insurance that they have bought through dealerships where it’s called add-on insurance. Effectively what it’s supposed to do is cover a gap if your insurance policy doesn’t cover your warranties or whatever don’t cover you.
In this particular case, Australian securities and investments commission has found that in many cases this was simply inappropriate insurance that wasn’t required, it basically was already picking up a coverage that the person had.
As a result ASIC has stepped in, and now QBE will take a series of measures to refund premiums paid by customers. As I say, 35,000 customers are likely to get some money back from this. Let’s go to Peter Kell who is the deputy chairman of the Australian securities and investments commission, and he’s on the line right now. Peter many thanks for your time.
Interview, Peter Kell, Deputy Chairman, Australian Securities and Investments Commission (ASIC)
Peter Kell: Happy to be here Ross.
Ross Greenwood: Okay, Peter just take me through exactly what QBE will do in response to this?
Peter Kell: Okay. QBE is going to be refunding customers who purchased via QBE, are guaranteed assets, protectional gap policy and also a consumer credit insurance policy. This is because in effect this policies in many cases were not offering any meaningful value to the customer, then in some cases duplicated, existing cover, insurance cover held by consumers, that provided consumers with insurance that was unnecessary. In some cases, I was told for example the young people who had no dependents and didn’t know the insurance that was offered.
Ross Greenwood: There’s a big thing Peter, if I walked into a dealership and I’d been buying a car at that time and I’d been offered this type of insurance, would have I been savvy enough, would have a reasonable person been savvy enough to avoid that that they did not need they this insurance?
Peter Kell: That’s a good question. We at ASIC, we did a major review of this area late last year, and we found that many customers didn’t understand what they were being sold, this so-called add-on insurance can be quite complicated, the sales environment be one where there’s quite an aggressive push to get you to sign up for these additional insurance product. [chuckles] Surprisingly what we found, but as a result many people were never ever making a claim on them. In fact in some cases people weren’t even going to be able to make a claim on them.
You had payout ratios of say five cents in a dollar, which is a pretty good– [crosstalk]
Ross Greenwood: Which is pretty good margin, is it 95% of every payment you write you keep, it’s not a bad margin in that regard. I just care to this point, because I do know that as part of this settlement you’ve got, QBE to pay 50,000 dollars into the financial literacy Australia, which will obviously assist with the community having better knowledge of their finances. But I’m really wondering whether these types of contracts, whether they would even be beyond the comprehension of even somebody who is relatively financially literate?
Peter Kell: Look, to be honest I’ve struggled at times to explain to people exactly how some of those policies work. I think you’d find that many people who bought them would not know exactly how a gap insurance policy works. They’ve been asked to sign up, they’ve been told this is going to offer them perfection, without really understanding whether it’s something that they need.
I might say it’s not just QBE, you can expect civil action in relation to other insurance as we work our way through the industry, because frankly this has been right across the sector. Insurers have take more responsibility to making sure that through car dealership channel, people are getting value for money rather than really full product.
Ross Greenwood: I listen just one quick one, I do know that, having spoken to the chairman of the ACCC, the Australian Competition and Consumer Commission the other day. Rhode seems that he also has got significant action at against car dealerships, and he’s worried about some of the behavior inside car dealerships right now. You’ve got obviously a similar endeavor, which is actually culminated in this. Is it something where the agencies are working together to try and clean up car dealerships right now?
Peter Kell: For sure, we are talking to our colleagues at the Australian competition and consumer commission. I think one of the issues here is when it comes to these sources, add-on financial products, that to me car dealerships ended up trying to make more money out of these source of products and then actually out of the sale of the car. I think there’s a question about re-balancing that approach because it’s not sustainable, certainly not sustainable to sell really poor quality financial products. But tn our case we’re emphasizing if ultimately the financial company, the insurance that also have to take responsibility.
Ross Greenwood: Tell you what, great you on the program, Peter Kell. Peter Kell is the deputy chair of the Australian Securities and Investment Commission. You can hear there there are multi agencies right now targeting car dealerships and the products that they sell inside them. Peter we appreciate your time.
Peter Kell: Thanks very much Ross.