The Australian Competition and Consumer Commission says a proposed 20% cap on dealer sales of add-on insurance products more likely would transfer wealth from dealerships to insurers than reduce prices for consumers.
Car dealers win skirmish over insurance products but see room for improvement.
Australian insurance companies lose a bid to form a cartel and set a cap on commissions paid to car dealers who sell their add-on insurance products.
An Australian Competition and Consumer Commission’s draft determination calls for the cartel authorization to be denied.
Sixteen insurance companies sought a cap on commissions, saying it was a way to stop consumers from being sold expensive products that often provide little if any benefit.
The companies acted after an Australian Securities and Investments Commission report found that at the point of sale, the consumer is focused on the purchase of a vehicle, not insurance, and the sales environment involves high-pressure selling tactics, a lack of adequate information, unreasonably high commissions and conflicts of interest.
Add-on products sold at the time of purchasing a motor vehicle include consumer-credit insurance, gap insurance, walkaway insurance and trauma insurance. Other products may relate to the vehicle, such as comprehensive insurance, extended-warranty insurance or tire and rim insurance.
The insurers says the factors identified in the ASIC report mean consumers often are unable to make well-informed choices when purchasing add-on insurance products as part of the car-buying process.
“This proposal doesn’t help to create an environment where consumers are in control and can benefit from effective competition,” ACCC Chairman Rod Sims says in a statement. “It is unlikely to address these market failures or improve the industry for consumers.
“A cap on commissions does not address these issues and will not remove the opportunity and incentive for insurers and dealerships to sell consumers expensive, poor-value products.”
While insurers would benefit from a cap at the expense of car dealers, Sims says, “this conduct is likely to lessen competition between insurers, including by creating greater opportunities for explicit or tacit collusion and greater shared knowledge between insurers of competitors’ costs.”
The ASIC report calls the dealerships’ insurance operations a market that is failing consumers and says their sale of add-on insurance is compromised by a lack of price competition, poorly designed products, poor value for money relative to premiums and a complex sales process that often does not disclose the total cost of coverage.
The ACCC says it is also concerned the arrangements wanted by the insurance companies, if implemented, could delay the development of more effective solutions to the problems ASIC has identified.
Australian Automotive Dealer Assn. CEO David Blackhall welcomes the ACCC ruling, saying his group “looks forward to continuing to work with ACCC and ASIC to ensure that any redesign of these products delivers real consumer benefits.”