This fact sheet outlines how AFCA deals with complaints about add-on insurance, including when a contract may be set aside for a refund of premiums.
Click here to download the PDF
What is add-on insurance?
Add-on insurance is a type of insurance that is offered to consumers in addition to another product, including:
- Consumer Credit Insurance (CCI)
- Guaranteed Asset Protection Insurance (GAP Insurance)
- Tyre and Rim Insurance
- Extended Warranty / Mechanical Breakdown Insurance.
Financial firms may offer add-on insurance to consumers along with car loans, novated leases, personal loans, home loans and credit / store cards.
Add-on insurance may be a stand-alone policy paid upfront, paid monthly or financed into a line of credit.
What is AFCA’s approach to add-on insurance complaints?
Some of the add-on insurance complaints lodged with AFCA relate to sale events that happened more than six years earlier than the time of lodgement with AFCA. Under our Rules, AFCA will generally not consider a complaint unless it was submitted within six years of the date the Complainant first became aware or should reasonably have become aware that they have suffered a loss.
Reasonable awareness of loss for add-on insurance complaints
AFCA’s general view is that reasonable awareness of loss for the purpose of AFCA Rule B.4.3.1(a) arose from the widespread media coverage generated by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (FSRC). The FSRC was established in December 2017 and concluded in February 2019. The FSRC raised concerns about add-on insurance product design and mis-selling.
The widespread media coverage included written and TV opinion pieces, live broadcasts, regular TV news reports, and re-publication of news reports, over many months, including of the interim and final reports. This, we consider, led to unprecedented broad public awareness of the add-on insurance issues.
AFCA will also consider whether there are specific circumstances about a complaint that indicate that the complainant should reasonably have become aware of the loss at a time before the FSRC.
Issues AFCA will consider
AFCA will review the available material to determine if any of the following factors are relevant:
- Inadequate disclosure of important product terms
- Elements of misrepresentation, duress, undue influence or misleading conduct
- A lack of fair dealing or unfair selling practices.
If any of these factors are present, this may be grounds to set aside the add-on insurance contract and award in the complainant’s favour – see “AFCA’s approach to misleading conduct” on our website: afca.org.au/approach.
How will AFCA weigh the importance of signed documents?
Often a financial firm will rely on the fact the complainant signed documents agreeing to purchase the add-on insurance, and / or acknowledged receipt of documents about the sale.
While consumers are generally bound by an agreement they have entered into (and signed), we do not consider that this is always fair in all the circumstances. We will also consider whether the policy holder(s) provided clear, informed consent to purchase the add-on insurance(s).
The FSRC and the Australian Securities and Investments Commission in various reports raised concerns about inappropriate and unfair add-on insurance sales practices. Several financial firms have implemented significant remediation programs to address poor product design and inappropriate sales practices. These reports raise questions about how informed complainants’ purchasing decisions were.
Taking these matters into account, AFCA will look beyond the mere fact the complainant signed or received documents.
What information does AFCA need?
AFCA may ask complainants to provide:
- A detailed account of the discussion at point of sale
- What was considered misleading and / or inappropriate about the sale
- A copy of the loan contract (if the add-on insurance premium was financed by a loan)
- Any documentation provided at the point of sale
- Any documentation received about the add-on insurance after the sale
- Any notes taken during the sale
- A description of the desired outcome.
From fee paid representatives
Some complainants choose to use a fee paid representative to act on their behalf (although this is not necessary). Fee paid representatives may charge upfront fees and / or a proportion of any successful refund. Even if the complaint outcome is in the consumer’s favour, AFCA will generally not require the financial firm to fund the fees charged by the paid representative.
Fee paid representatives should ensure their submissions to AFCA cover all the requirements relevant to the type of add-on insurance(s) being complained about in their AFCA lodgement – see afca.org.au/paid-representatives.
We encourage fee paid representatives to use the guidance to help them provide a complaint submission to the financial firm, before lodging a complaint with AFCA. A detailed submission may help to achieve an early resolution, without the need to lodge a complaint with AFCA.
A submission that does not meet these requirements may mean that AFCA closes the complaint under Rule C.2.2(g)
From financial firms
Each add-on insurance complaint is assessed on its own individual merits. Financial firms should provide their external dispute resolution (EDR) response in line with our Add-on insurance EDR Guide.
AFCA will decide what additional material may be needed through a 7–21-day information request, if the complaint continues to a preliminary assessment.
If a financial firm does not want certain information to be exchanged or disclosed to a complainant or their representative – see “AFCA’s approach to assessing special circumstances” on our website: afca.org.au/approach.
What happens if a party cannot provide adequate information?
It is important that complainants and financial firms provide information and supporting documentation at lodgement, or as soon as practicable. Every add-on insurance complaint is assessed on its own individual facts and circumstances.
A separate fact sheet deals with how we consider information – see “How AFCA will assess the information you give us” on our website: afca.org.au/factsheets.
What outcomes can AFCA provide?
If we find that it is fair to set aside the add-on insurance contract, AFCA will aim to provide a remedy that we consider is fair in all the circumstances.
We will consider:
- The causal link to a claimed loss
- The financial benefits a person might have received from the sale of add-on insurance (e.g. tax benefits under a novated lease scenario); and
- A person’s actions taken to reasonably mitigate their loss.
Our general approach is to return the consumer to the position they would have been in before the add-on insurance product was sold to them. We do this by requiring the financial firm to refund the premium(s), less any previous premium refund(s) and / or any claims paid. If the premium(s) were funded by a credit product (e.g. a personal loan), we may also require the firm to pay back the interest paid on the premium(s).
If the loan that financed the premiums is still under contract or has been defaulted on, we may require that any refund be offset against the loan or the debt.
Where appropriate, we may also consider adjusting the final compensation amount payable to account for inflation. If we decide to award compensation for this, the amount payable will usually be based on the change in the Australian Bureau of Statistics’ consumer price index between when an inappropriate charge was incurred and when the inappropriate charge was refunded.
When will AFCA decide not to investigate?
In some circumstances AFCA may consider that it is not fair to continue an add-on insurance complaint where:
- Add-on insurance was sold online and the sales process was not unfair, and appropriate disclosures were made
- Add-on insurance was sold over seven years ago, with no misconduct identified by the complainant
- A financial firm no longer has information on record to be able to fairly respond to allegations of mis-selling or misconduct
- Add-on insurance was cancelled over seven years ago and neither party can demonstrate what premiums were charged
- The offer made by the financial firm is equal to what AFCA would award
- The complainant has previously received a remedy from the financial firm and there is no additional loss
These are some common examples where it may be unfair for AFCA to continue the add-on insurance complaint. See section A.8.3 of the AFCA Rules on our website for more information: afca.org.au/rules.
Several current and past class actions apply to the sale of add-on insurance. If the sale of the add-on insurance meets the class action criteria, we will not be able to investigate unless the policy holder has opted out of the class action by the due date. A separate fact sheet deals with class actions – see “Class actions affecting AFCA complaints” on our website: afca.org.au/factsheets.