ADIs in the customer owned banking sector have stopped selling consumer credit insurance with loans, following a regulatory crackdown on the product, but the sector’s own watchdog has found that there are problems with the way customer owned banks are handling ongoing CCI issues.
The Customer Owned Banking Code Compliance Committee has released the findings of a follow-up inquiry into CCI, reporting that ADIs are not keeping track of customers’ CCI policies, some have entered into high-commission referral arrangements and may not have performed sufficient due diligence on the insurer, and staff training dealing with CCI is sometimes non-existent or inadequate.
The COBCCC is concerned that some ADIs think their responsibilities ended when they stopped selling the product.
In 2019, the Australian Securities and Investments Commission released the findings of a review of the CCI sector, saying the design and sale of CCI had consistently failed consumers. Products were of “low value” and sales practices “unfair”.
For CCI sold with credit cards, consumers received only 11 cents in claims for every dollar paid in premiums, and for CCI sold by lenders only 19 cents was recovered in claims for every premium dollar paid.
CCI was sold to consumers despite the fact they were ineligible to claim, telephone sales staff used high-pressure tactics and consumers were given non-compliant personal advice to buy unsuitable policies. Consumers were charged CCI premiums after their loan had been paid out.
ASIC said that if it did not see “early, significant and sustained improvement in the design and sale of consumer credit insurance” it might deploy its product intervention power.
The COBCCC said that by the second half of 2020 all code subscribers had stopped selling CCI.
The committee said it expects code subscribers to continue monitoring the status of customers’ CCI polices, even though the insurance provider is responsible for handling claims.
But it said almost a quarter of code subscribers interviewed for its inquiry were unable to provide any details at all about their customers’ active CCI policies.
It is also concerned that a few code subscribers are receiving commissions of up to 20 per cent for referrals to CCI providers.
“Any code subscriber that has a referral arrangement with an insurance provider must comply with their obligation to ensure that any third party service provider they introduce to their customers is reputable,” it said.
And it found a couple of code subscribers that provide no CCI training to staff, while others train staff to refer customers with queries to the insurer.
In its recommendations, the COBCCC said ADIs should ask insurers for periodic reports on the status of any CCI policies attached to customer loans and ensure that records of all previous CCI sales are up to date.
ADIs should conduct due diligence to ensure CCI products will be useful, reliable and of value before entering into a referral arrangement.
It wants staff training to include procedures for handling queries or complaints about CCI policies and it wants ADIs to monitor complaints.
And it said ADIs should be prepared to help customers lodge CCI claims, help manage privacy arrangements