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Connexus : Issue 39
24 Connexus 24 Connexus Insurance T he corporate regulator’s new guidelines on selling consumer credit insurance (CCI) is a wake-up call that should be heeded by all authorised deposit-taking institutions, says Abacus-Australian Mutuals senior manager and company secretary Michael Funston. When the Australian Securities and Investments Commission (ASIC) rev iewed the CCI practices of 15 ADIs in 2009, it concluded that they could sometimes increase the risk of mis- selling. ASIC’s report, released last October, includes 10 best-practice recommendations cover ing sales practices, disclosure, staff training programs and monitoring systems. ASIC has flagged a follow-up review of practices, starting around the middle of this year. It will look at claims and complaints handling procedures; the subject matter of complaints; the reasons claims are denied and withdrawn and policies cancelled; and net loss ratios. “We want to draw members’ attention to the recommendations and why ASIC indicated it had some concerns,” says Funston. “It is important that people have a look at their practices and make sure they are up to scratch.” ASIC’s review followed compliance action the regulator took against three companies where customers complained they had been sold CCI without their consent. The complaints stemmed from phone sales of credit card insurance, and not mortgage or personal loan for ms of CCI. ASIC noted that, compared with many other insurance products, CCI had high conversion rates, with the CCI typically bundled in with the loan product. It also had high cancellation rates and a high number of denied claims (15.9 per cent for the ADIs reviewed). Net loss ratios were low when compared with other types of insurance. Despite this, there is an ongoing and legitimate role for var ious for ms of CCI, says Funston. “ There were some problems, it must be ack nowledged,” he says. “ But I don’t think what ASIC has come up with represents any fundamental challenge to the product as such.” ASIC and the industry, including insurers and distributors, worked cooperatively during the review to improve industry practice, and therefore outcomes for consumers, he says. “Our message to our members is that ASIC has issued a reasonable report and has made recommendations which are generally reasonable, and they are what you ought to be doing. “It is important that members look at their practices because this will continue to be a focus of ASIC’s scr utiny.” using sales scripts ASIC recommends that detailed, formal sales templates or scripts be used when CCI is sold over the telephone. They must incor porate: • Clear questions requesting permission to discuss insurance. • Explanations a bout exclusions and the fact that CCI is optional. • The choice of words such as ‘purchase’ and ‘buy’ instead of ‘activate’, ‘enrol’ or ‘process’ to describe the purchase of CCI. These measures will help lower the potential for mis-selling, says the regulator. Scripts also have to draw consumers’ attention to the full cost of CCI, and sales staff need to be instructed to end a call if a consumer indicates they are not regulator focus on CCi Having cast a close eye over how consumer credit insurance is sold, the corporate regulator has set clear guidelines – and it’s going back for a second look. By SUE PEACOCk It is important that members look at their practices because this will continue to be a focus of ASIC’s scrutiny.