The Financial Review has today reported that one in five customers have been sold ‘add-on’ insurance, such as CCI (consumer credit insurance) without their knowledge or consent.* Some people are even unaware that the insurance is entirely optional. This is a shocking revelation when you consider that almost $2 billion of CCI premiums have been sold in Australia over the past 5 years.
CCI is an additional product sold when taking on a credit contract like a personal loan or credit card. Typically, its purpose is to cover repayments if the borrower dies, becomes ill or loses their job.
Because of its very nature, the potential for selling a product that isn’t needed is great. Most people simply don’t read product disclosure statements and the trust factor with the financial institutions selling the products is traditionally quite high. ASIC have been investigating financial institutions selling CCI since 2011, when a huge insurance scandal was uncovered in Britain leading to billions of pounds being refunded to customers. In some of the worst cases investigated by ASIC, Australian customers have been found to be paying for CCI during periods when they did not even have a loan. To make matters worse, CCI has one of the highest claim rejection rates of all insurances.
There is also huge potential for consumers to be harassed by sales people or hoodwinked into purchasing a policy with ASIC finding that ‘significant improvements could be made to sales practices’.
Clearly the key is to make sure consumers are very aware of what they are purchasing and why.
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*Consumer Action Law Centre report