A new study found that consumers shelled out $1.6 billion in insurance premiums and they have been duped into getting an expensive, poor value insurance products that provide them with little or no benefit, according to the Australian Securities and Investment Commission (ASIC).
They have reviewed the sale of add-on insurance purchased through car dealerships for the span of three years. Add-on insurance products are sold to consumers when they purchased a brand-new or used car at a dealership. It usually include tire and rim insurance, mechanical breakdown insurance and extended warranties.
Australian Securities and Investment Commission (ASIC) chairman Peter Kell said there are serious problems with the industry.
"There are serious problems in this market that need to be immediately and comprehensively addressed by insurers," he said. "ASIC will be undertaking further work, including potential enforcement action to ensure that this market delivers acceptable outcomes for consumers."
Car dealers like selling this type of insurance since they receive big commissions on it, with salesperson earning $602 million, this is more than four times what consumers received in claims. The report also said that consumers paid $1.6 billion in premiums and received only $144 million in successful claims.
Payment for this type of add-on insurance was usually packaged into the customer's car loan as a single upfront premium, which could significantly increase the cost of the vehicle by increasing the loan amount and interest paid.
Consumer Action Law Centre advise the car buyers to not be tricked into buying insurance in a car dealership and they should shop around and consider all the options first that are available in the market so that they can get a good deal rather than accepting what the car dealer has to offer.
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