ACCC Addresses Car Insurance Concerns.
Stratton Finance CEO Rob Chaloner has backed the ACCC’s stance to oppose a 20 per cent cap on commissions paid to car dealers who sell add-on insurance products, arguing that a commission cap will lessen competition and ultimately harm consumers.
The Australian Securities and Investments Commission (ASIC) has issued a report named “A market that is failing consumers: The sale of add-on insurance through car dealers”
, which claims consumers are being sold expensive products that often provide little to no benefit – and are sold at a time when the consumer is often buying a new car and distracted. It recommended a 20 per cent cap.
Chaloner argues: “Removal of competition has always resulted in a bad outcome for the consumer. In this case, the competitive nature of provision of insurance products to dealers means if commissions are the same industry-wide, insurers won’t compete for business and premiums will rise. This means higher costs hitting consumers’ wallets.
“If commissions are capped at 20 per cent, premiums will rise to bolster the dealers’ income to make it viable. There is no way around it, the consumer would suffer. Markets need to find their own level and free competition does that.
“Well done to the ACCC for not going along with this commission cap. It would simply hurt the people it purports to help.”
Chaloner also contends that a number of add-on insurance products are in fact highly valuable to customers, contrary to the ASIC report.
“GAP in particular saves consumers from harm in the real world. It can cost as little as $600-800 over a 60 month loan to know that if you write off your car, you won’t have to write an expensive cheque. Currently a dealership may earn a $240 commission from this. It takes considerable time to offer the product, inform the customer of the features and benefits and complete the contract. Let’s be realistic, if the service commission is capped at $120 nobody would bother and consumers would be harmed as a result,” notes Chaloner.
Add-on insurance is usually associated with consumer credit insurance, gap insurance, walk away insurance, and trauma insurance. Alternatively, it may relate to the vehicle itself, such as comprehensive insurance, extended warranty insurance, or tyre and rim insurance.
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