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An independent authority that promotes competition and fair trade in markets has proposed to deny the authorisation of an agreed cap on car dealer commissions involving the sale of add-on insurance.
Following a report by the Australian Securities and Investments Commission (ASIC) in September last year, the Australian Competition and Consumer Commission (ACCC) has proposed denying 16 insurance companies authorisation to agree to a 20% cap on commissions paid to car dealers who sell their add-on insurance products.
The ASIC report, entitled A market that is failing consumers: The sale of add-on insurance through car dealers, revealed that consumers are being sold expensive products that provide them with little to no benefit.
ASIC said these add-on products are sold in a high-pressure environment, where consumers are more focused on the sale of a vehicle, not insurance, and where there are conflicts of interest and a lack of information.
ACCC Chairman Rod Sims said the group believes the proposed cap is unlikely to benefit the public.
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“The factors identified in ASIC’s report mean that consumers are often unable to make optimal, well-informed choices when buying add-on insurance products when buying a car from a dealer,” he explained. “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.
“This proposal doesn’t help to create an environment where consumers are in control and can benefit from effective competition. It is unlikely to address these market failures or improve the industry for consumers.”
Sims also said the proposed cap will not only impact competition between insurers, it will also become a barrier to addressing the issues ASIC has identified.
“While insurers would benefit from a cap at the expense of car dealers, 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,” he said.
“The ACCC is also concerned that these arrangements, if implemented, could significantly delay the development of more effective solutions to the problems that ASIC has identified.”
The issues identified by ASIC include 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 the cover.
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