CGU Insurance and its completely owned underwriting firm Accident and Health International will repay more than $2 million in payday lending consumer credit insurance (CCI) premiums and expenditures (AHI).
In addition, they will commission third-party objective studies of the cover’s selling.
Following the regulator’s legal action against the firm that supplied the CGU product, The Cash Store (TCS), CGU issued undertakings to the Australian Securities and Investments Commission (ASIC).
TCS, which is bankrupt, was found to have breached consumer rights last August when it marketed clients a “useless” CCI product in connection with payday loans, according to the Federal Court. The insurance covered the risk of losing a job, getting sick, or dying during the loan terms, which varied from one day to two weeks.
TCS earned $2.3 million in premiums by selling the CCI product to 182,838 customers between August 2010 and March 2012. It usually charged a fee of 3.38 percent of the borrowing amount.
During this period, just 43 claims totalling $25,118 were paid.
The court decided that vulnerable consumers, such as those with low incomes and those receiving Centrelink subsidies, were specifically targeted for the selling of insurance.
In February, the court fined TCS and loan financier Assistive Finance Australia a record $18.9 million for flagrant breaches of responsible lending laws.
This is the largest civil fine that ASIC has ever received.
According to ASIC Deputy Chairman Peter Kell, the regulator was concerned about the sale of payday insurance “when it was highly unlikely that clients would be able to lodge a claim.”
CGU and AHI have agreed to repay the whole amount paid by consumers, plus interest, for all CCI product sales. They will also commission independent investigations of AHI’s role as the organisation in charge of underwriting the payday loan insurance, as well as CGU’s control of outsiders.
CGU spokesman Richard Webb told insuranceNEWS.com.au that the insurer and AHI “share ASIC’s concern about The Cash Store’s operations and the vile way in which it sold an insurance coverage we have supplied.”
According to Mr. Webb, they are “particularly concerned” about how TCS’s actions may harm vulnerable clients.
“CGU and AHI take our [consumer] obligations extremely seriously, and we want to do the right thing,” he continued. Doing the right thing includes offering a fair and timely resolution.
According to a March ASIC release, Allianz had agreed to repay roughly $400,000 in CCI product premiums.
Despite Allianz’s assertion that the policy was provided without its knowledge, the two parties had an underwriting agency agreement.
Allianz, CGU, and AHI have agreed to pay over $2.5 million in reimbursements.
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