CBA to issue $16m in refunds ahead of royal commission hearings

Announced as the Commonwealth Bank is forced to defend its 'junk' insurance sales and policies.

  • Refunds for 140,000 CBA customers
  • Upcoming royal commission hearings to focus on CBA junk insurance
  • Junk insurance estimated to cost Australians $1 billion in last decade

Commonwealth Bank will issue $16 million in refunds to 140,000 people who were sold add-on insurance right before the bank's 'junk' products become the subject of royal commission hearings.

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Others are predicted to follow the example set by the largest bank in the country, with a leading consumer group describing add-on insurance as "on its deathbed".

Refunds with interest will be given to people who were sold two of CBA's consumer credit insurance products, after an internal review found they wouldn't be able to lodge successful claims as the products were not suitable.

Consumer credit insurance has been pitched to customers as a safety net that'll help them meet their credit card or loan repayments if they lose their job, become sick, injured or die. The financial regulator characterises them as poor value when compared to other insurance products; consumer groups simply describe them as 'junk'.

CBA's internal review found some of the customers who bought add-on insurance to cover their credit card and personal loan repayments were ineligible to lodge a claim, says Matt Comyn, group executive retail banking services at Commonwealth Bank.

"We have concerns that some customers who have been sold these products may not have been eligible to receive all of the employment related benefits," he says. "We're provide refunds to customers who may have been ineligible to claim some benefits due to their employment status at the time of taking out the policy."

Bank advisers don't have to sell insurance products that are in the best interest of their customers – allowing them to prioritise commission payments – as insurance products don't fall under Future of Financial Advice (FoFA) laws.

Commonwealth Bank's sale of add-on insurance will be scrutinised by the royal commission in the first round of public hearings, scheduled to start this month. The commission will focus on CBA's sale of credit insurance for "home loans, personal loans and credit cards".

The royal commission first round hearings will run from 13–23 March, and will additionally cover residential mortgages, car finance and credit cards.

Consumer Action Law Centre (CALC), a consumer group that offers financial counselling services, says banks have been using junk insurance to "steal from Australians for over a decade".

"The junk insurance scandal has been allowed to go on for too long. It's time for others to follow suit and stop selling this rubbish," says Gerard Brody, the non-profit's chief executive.

"The stories we've heard have been atrocious – people tricked into buying insurance, insurance slipped into paperwork without people's knowledge and thousands of dollars being taken from families for no benefit," he adds.

CALC estimates the mis-selling of add-on insurance is likely to have cost Australians $1 billion over the last 10 years.

Commonwealth Bank says it will take until 30 June – the end of the financial year – to completely withdraw the add-on insurance products from the market.

But the company plans on replacing them with products developed with AIA, the global insurer that purchased its beleaguered CommInsure business, to design insurance products based on the standards developed by the financial regulator, the Australian Securities and Investments Commission (ASIC).

The company is contacting customers entitled to a refund in the meantime.