Credit unions, mutual banks and mutual building societies have stopped selling consumer credit insurance (CCI) products since September last year, according to the Customer Owned Banking Code Compliance Committee.
The committee says a follow-up inquiry it conducted found most code subscribers’ CCI activity is restricted to managing loans with the add-ons attached, while a handful offer referral to insurance providers for customers who are looking to purchase a policy, and will usually get a commission if a sale is made.
Depending on the code subscriber, the number of loans covered by active CCI policies ranges from four to 70,000, the committee says.
Most of the 50 subscribers of varying sizes who were interviewed last year for the follow-up inquiry expect active CCI policies will cease within five years, once the loans to which they are attached are paid off.
The inquiry aims to examine how code subscribers are managing loans with CCI attached and whether subscribers who offer referral service are running the process appropriately and in line with their code obligations.
Subscribers who have decided to stop selling the products cited a variety of reasons for doing so. Many say the cost and additional resourcing required to meet compliance and regulatory obligations were beyond what they could sustain for a non-core banking product.
Some say they were unable to continue selling CCI after the insurer withdrew the product from the market, while others say they were not selling a sufficiently high number of policies to warrant offering it to their customers.
The inquiry found several insurers chose to end their sales agreement with code subscribers, a situation that led to some seeking alternative CCI insurance partners.
It says Allianz and CGU are the two most common providers of CCI products to code subscribers’ customers, with 36% of institutions currently or previously using Allianz and another 36% currently or previously using CGU.
Allianz stopped offering CCI in 2019 after refunding more than $8 million to 15,000 customers who bought the product from 2011. The four major banks – ANZ, NAB, Commonwealth and Westpac – have taken similar action.
Consumer groups have long slammed CCI as “junk” products that have been hawked to the public.
Following recommendations from the Hayne royal commission, the Australian Securities and Investments Commission now has greater product intervention powers in relation to the distribution of add-on insurance such as CCI.
Despite the criticism and crackdown, most of the code subscribers that were interviewed “hold the view that there is a market for CCI products”, the committee says.
“They also believe that customers who have purchased CCI are generally happy with the product and are deriving some benefit from it.”
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