The Treasurer has confirmed that home building insurance and home and contents insurance will be exempt from the deferred sales model.
The Commonwealth government has confirmed which add-on insurance products will be exempt from the deferred sales model laws.
As per recommendation 4.3 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the government had committed to develop an “appropriate” deferred sales model for add-on insurance products, after commissioner Kenneth Hayne found that the practice had contributed to widespread consumer detriment.
These largely related to practices where sellers of add-on insurance products had adopted “pressure sales tactics” and offered add-on insurance products that represented “poor value for money” to consumers.
The government therefore passed laws in December 2020, which introduced a deferred sales model for add-on insurance, as part of a move to promote “informed purchasing decisions by consumers in add-on insurance markets”.
The regime is due to commence on 5 October 2021.
This means that from this time, there must be a “pause” (or deferral) in the sales process between the consumer’s purchase of the primary product and their decision to purchase add-on insurance. It is hoped that the deferral period will enable and encourage consumers to consider the merits of the insurance offered and to consult alternative products.
However, the legislation also provided for regulations to exempt a class of add-on insurance products where it would not be appropriate that they be captured by the deferred sales model.
Following consultation, the government has now concluded that it will exempt the following classes of insurance products from the deferred sales model:
- home building insurance;
- home and contents insurance;
- landlord insurance;
- compulsory third party insurance for motor vehicles;
- third-party property damage, fire and theft insurance for motor vehicles;
- comprehensive insurance for boats, motorcycles, motorhomes, caravans and trucks;
- insurance sold within superannuation (including group life insurance); and
- postage and delivery of consumer goods insurance.
Relief will also be provided for wholesale style insurances available to businesses.
Basic banking products will also be exempt from the anti‑hawking regime, where the customer initiates the contact.
This includes contact about products such as transaction accounts, stored value cards, electronic cash, direct debit services and electronic payment services.
According to government, these products are “well understood by consumers” and therefore were not appropriate to be included in the anti-hawking regime.
Treasurer Josh Frydenberg said that the move would “provide consumers and industry with greater certainty in relation to the insurance products that will be covered by the deferred sales model and anti-hawking regime”.
“The government will continue to consult with stakeholders on any additional exemptions that may be appropriate. As consultation has demonstrated, careful implementation will be required to ensure the deferred sales model continues to allow small business and consumers to access the insurance they legitimately need on a timely basis and to avoid inadvertently impacting our economic recovery from COVID-19.
“The government remains focused on completing implementation of the remaining recommendations of the Hayne royal commission.”
Home insurance exemption will benefit borrowers
Welcoming the move, the Customer Owned Banking Association (COBA) said that it was “in the interests of consumers to exempt home building insurance and home and contents insurance from the deferred sales model”.
COBA CEO Michael Lawrence commented: “This will remove a potential barrier to home loan borrowers obtaining crucial and timely insurance coverage.
“COBA member banking institutions were concerned that their capacity to offer home building insurance to home-loan borrowers would be hampered by the deferred sales model. For most people, the family home is their most valuable asset. Destruction of this asset without insurance would be a financial catastrophe for most people.
“New laws flowing from the financial services royal commission are intended to protect consumers, particularly from ‘junk’ products or from sales pressure in relation to products they don’t really need. However, home building insurance is not a ‘junk’ product. The Treasurer’s announcement is welcome recognition of this.
“We look forward to guidance from ASIC to ensure that the anti-hawking regime is not a barrier to the home loan borrowers obtaining timely insurance coverage,” he said.
Mr Lawrence continued: “We also welcome the Treasurer’s announcement that basic banking products will be exempt from the anti-hawking regime, where the customer initiates the contact. This is a sensible, practical approach which is in the interests of consumers.
“It means that when a consumer gets in touch with a bank, bank staff can talk to the consumer about basic banking products such as transaction accounts without risking a breach of the anti-hawking law.”
[Related: CBA faces class action over credit insurance]