One of the key outcomes of the Financial Sector Reform Bill 2020 (in response to the Hayne Royal Commission Response) was the establishment of an industry-wide Deferred Sales Model (DSM) for add-on insurance.
The DSM will introduce a pause in the sales process between the purchase of a primary insurance product and the purchase of any add-on insurance. The aim is to allow consumers to make informed decisions about the merits of any insurance offered to them.
What that means in practice is that dealer sales staff will be able to advise their customers about an add-on insurance product (such as mechanical or motor breakdown insurance or tyre and rim insurance) during the car purchase process. But they must wait four days before selling it to their customer.
Importantly for the motor vehicle insurance sector, the government intends to exempt comprehensive motor insurance from the DSM regulations.
James Voortman, Chief Executive Officer of the Australian Automotive Dealer Association (AADA), says the introduction of the DSM will bring a great deal of disruption to the selling of insurance products. But he says the exemption of comprehensive motor insurance from the DSM is a positive.
“We’re thankful that comprehensive vehicle insurance has not been deemed an add-on product,” Voortman says. “It will be able to be sold as it currently is, but dealers will have to work very closely with their insurance providers, such as Allianz, to understand what they need to do to comply with the Deferred Sales Model.”*
He adds that a lot of insurers have already withdrawn from offering add-on products and that the sector has seen much better insurance product design as a result.