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.
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
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 working...to 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
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.