The non-major bank has temporarily ceased selling its consumer credit insurance product, as the CCI industry revises its offering following a damning ASIC report.
Heritage Bank has announced that it has made an “interim decision” to pull its consumer credit insurance product on mortgages and personal loans from sale “while the CCI industry redesigns its products to improve outcomes for customers”.
The decision, which took effect on 17 July, follows on from a censorious review of CCI products from the financial services regulator.
CCI is usually sold by lenders to borrowers when they take out a mortgage, personal loan or credit card and provides cover for consumers if they are unable to meet their minimum loan repayments due to unemployment, sickness or injury or to pay the outstanding loan balance upon death.
According to the Australian Securities and Investments Commission (ASIC)’s recently released report, Consumer credit insurance: Poor value products and harmful sales practices, which looked at CCI practices from 11 lenders, the design and sale of consumer credit insurance has “consistently failed consumers”.
While the report did not look at products sold by Heritage Bank, it warned that CCI products are typically of “very low value” and have been sold and promoted in an “unfair manner”.
As such, Heritage Bank last week made the decision to stop selling its CCI product, effective from Wednesday, 17 July.
“Heritage will continue to monitor the market for new and improved CCI products and will consider offering CCI again once a more customer-focused CCI product solution is identified,” a bank statement reads.
The bank also announced that it will be opening its first branches outside of Queenland this year, with both opening in Sydney.
As such, one branch will open in the Castle Towers Shopping Centre in late October and another will open at Westfield Parramatta in December.
The two new branches in Sydney are part of a longer term strategy for Heritage to open more branches in the Western Sydney area, as well as in suitable growth corridors in the Melbourne metropolitan area.
CEO Peter Lock commented: “Heritage has been providing home loans to customers throughout Australia for 20 years via mortgage brokers, as well as through our Queensland branches. We already have thousands of customers in Sydney, and we’ve had an office in Parramatta for many years to support our broker team.
“That means we’re not totally new to Sydney and we do understand the market.
“Opening branches in Sydney reflects our desire to increase our presence nationally and our belief that the Heritage brand can resonate strongly with consumers wherever they live."
He added: “We’re excited to be bucking the industry trend by opening new branches. I firmly believe that talk about the imminent demise of physical branches is exaggerated. People still want to come into a branch and talk face-to-face with an expert about the biggest financial commitments they will make in their lives, so branches will be around for many years to come.”
The problems with CCI
According to ASIC’s recent review, CCI sold with credit cards was found to consistently be the poorest value for money for consumers compared to other CCI products.
Other issues identified included consumers being sold CCI despite the fact they were ineligible to claim under their policy, consumers being incorrectly charged for CCI, high-pressure selling and other unfair sales practices, non-compliant personal advice being issued to consumers to buy unsuitable policies, and a lack of consumer-focused processes to help consumers in hardship make a claim under their CCI policy.
Given the serious findings, ASIC has also reportedly commenced enforcement investigations into a number of entities that have been involved in mis-selling CCI to consumers (defendants to ASIC’s future action will reportedly be publicly identified at the time proceedings commence).
Since ASIC began working on the CCI review, several lenders ceased selling CCI with home loans, including Bendigo Bank, NAB, Suncorp and Westpac.
This follows a growing trend of lenders backing away from CCI – with total sales of all CCI products sold by the 11 lenders reviewed having decreased by 71 per cent between 2014 and 2018.
ASIC said it now expects all CCI lenders – regardless of whether they are signatories to the code – to incorporate a four-day deferred sales model for all CCI products across all channels.
It will also shortly consult on banning “unsolicited outbound sales of CCI by telephone” in a bid to protect consumers.
ASIC said it expects lenders and insurers to design and offer products with significantly higher claims ratios and will continue to collect and publish data to measure improvements.
All lenders selling CCI will now be required to meet the following standards or cease selling CCI altogether:
- Improve product design and value, including unbundling CCI products so that consumers can select the cover they are eligible to use and which meets their needs, and “significantly increasing” claims ratios from “the current poor levels of 19 cents in the dollar”.
- Improve sales practices. This includes ceasing outbound unsolicited phone sales of CCI, the introducing of “hard filters” for key eligibility criteria for online sales, ensuring consumers are not being sold a CCI policy where they are ineligible to claim, and incorporating a four-day deferred sales model for all CCI products across all channels.
- Improve post-sales conduct, including not charging premiums for CCI where primary benefits are no longer available; giving consumers appropriate annual communication about the price, limits and exclusions of the policy; and notifying a consumer with a CCI policy who applies for changes to their loan contract due to financial hardship that they have a CCI policy and provide or transfer their claim details to the insurer for assessment.
- Improve compliance and monitoring, such as refraining from selling CCI unless they can demonstrate compliance with these standards, and conducting a “thorough and robust review” and identifying remediation for consumers when these standards are not met.
The regulator has warned that if there is no “early, significant and sustained improvement in the design and sale of consumer credit insurance”, it would look to potentially ban the product as per its new product intervention power.
[Related: Personal loan customers refunded millions]