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Add-on car insurance investigated

Investigations by Australian regulators have shed light on the relationship between insurers and car dealers selling insurance on commission, which can reach 79% of premiums.

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Both here and in Oz, consumers who buy new or used cars through dealers are regularly offered insurance. The policies, called “add-on insurance”, cover either the car itself or the loan used to buy the car.

Last year, dealers and insurers were slammed by the Australian Securities and Investments Commission for selling expensive policies of little or no value to consumers. Premiums for these policies were typically built-in to the car loan. In some cases, consumers were unaware they’d even taken out a policy.

Following the investigation, insurers proposed a 20% cap on commissions paid to dealers, subject to approval by the Australian Competition and Consumer Commission. But the commission looks set to reject this proposal as inadequate.

Far from cleaning up the industry, the regulator believes the cap could lessen competition between insurers, create opportunities for collusion and won’t remove incentives to sell consumers expensive, poor value products.

While some insurers operate on both sides of the Tasman, there’s been no investigation of sales practices here. If you’re arranging insurance for a new or used car, don’t assume the dealer’s going to offer the best deal.

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