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Eric Insurance regulatory update - December 2017

by Asmita Kulkarni | Dec 21, 2017

Still awaiting response from ASIC, while Swann Insurance (Insurance Australia Group) fined AUD39m for add-on insurance


Over the past year, regulatory changes have continued to cause sector wide weakness across the motor vehicle insurance segment. The changes primarily relate to Australian Securities & Investment Commission’s (ASIC) investigation into selling add-on insurance through car dealers which was launched in 2016. The review found in certain cases that add-on insurance was expensive, of poor value and provided little or no benefit to consumers.

To date, over AUD55m in remediation refunds have been paid by three insurers – QBE, Virginia Surety and Swann Insurance (owned by Insurance Australia Group (IAG)). Eric Insurance, Allianz Australia Insurance, Aioi Nissay Dowa Insurance, MTA Insurance (Suncorp Group) and NM Insurance (acting as agent for AAI Limited) all still remain under review.

Additionally, in August 2017, ASIC released its Deferred Sales Model industry consultation paper (Consultation Paper 294). The purpose of the paper was to seek feedback from the industry on reform options for sale of add-on insurance and warranties through car yard intermediaries.  The outcomes of the paper are not yet known.

Recent developments

On 19 December 2017, ASIC announced that Swann Insurance (Swann) will offer to refund AUD39m to 67,960 customers in relation to premiums paid for add-on insurance products bought through car and motorbike dealerships. The remediation program focuses on policies in six different add-on insurance products sold by Swann where the consumer was unlikely to claim on the insurance, the policy was duplicating existing cover or customers were sold a more expensive level of cover than they needed. Full details of the remediation program can be found in the ASIC media release.

Implications for Eric Insurance

Please note, Swann is owned by Insurance Australia Group (IAG) and the policies in question above were retained by IAG and do not have any ties to the segment of Swann purchased by Eric Insurance in 2016.

As previously noted, Eric Insurance has been in regular discussion with ASIC regarding add-on insurance sales practices and has proactively implemented a remediation program under consultation with Ernst & Young to review GAP (Guaranteed Asset Protection Insurance) and LTI (Loan Termination Insurance) policies, which may be deemed to have no or low value to consumers. The affected consumers have been offered the opportunity to cancel the policy back to inception.

From discussion with the company, we are aware that the company remains focused on addressing the issues raised by ASIC in their various reports and continues to have frequent engagement with ASIC on the matters raised.

Eric Insurance is making a significant investment in IT solutions which are expected to be released to market in 4Q18 along with product amendments, which should address some of the issues raised by ASIC. Additionally, the company has made investment in building out the dealer compliance monitoring regime during 2Q18 to identify issues and to provide real time remediation of issues. 

Whether ASIC considers this approach to be adequate or whether further reform will be required is not known. As such, it is difficult to quantify the impact of the remediation program on Eric Insurance without further clarity from ASIC, and the regulatory disclosure provided by Eric Insurance in the 30 June 2017 financial statements remains valid.