Reduce risk to your dealership’s reputation

A car is one of the largest purchases a consumer is likely to make – second, typically, to the purchase of a home.

With consumers at some risk of being taken advantage of by unscrupulous car dealers, it’s no surprise that the recent Hayne Royal Commission into financial misconduct should have had the selling of insurance firmly in its sights.

Regulations already introduced as a result of the Royal Commission have forced insurance issuers and distributors to adapt how insurance products are sold to car buyers. With further reforms set to be introduced later this year, the onus is on the sector to ready itself for change.

What do the updated regulations mean for dealerships and how they provide insurance products to their customers?

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He adds that a lot of insurers have already withdrawn from offering add-on products and that the sector has seen much better insurance product design as a result.

Dealerships will need to prepare themselves for the introduction of the DSM on 5 October 2021.

The new regulation comes on the back of another Royal Commission recommendation that ASIC (the Australian Securities & Investments Commission) be given power to impose a cap on commissions paid to dealerships in relation to the sale of add-on products.

This regulation, which came into effect on 1 January 2021, is intended to reduce the amount of commission paid by insurance issuers to dealerships in relation to add-on insurance product sales.

Another piece of financial reform set to be enacted on 5 October this year are the design and distribution obligations. This reform is intended to embed a customer-centric approach to selling insurance and is aimed at both designers (insurance issuers) and distributors (dealerships).

The ultimate aim is to ensure the product being sold to consumers is fit for purpose and isn’t being sold to consumers who don’t need it.

How should dealerships navigate the potentially treacherous waters presented by these legislative reforms?

A key step in remaining compliant with the new rules is to undertake product and training offered by reputable insurance partners.

Stephen Charles, Allianz National Account Manager, says Allianz offers compliance training and regulatory updates as part of its training program for sales partners. The program makes it difficult to mis-sell any of Allianz’s insurance products – and minimises the likelihood of sales staff falling foul of any regulatory changes coming into effect.

“Working within Allianz’s training system gives comfort to sales staff that they’re not going to get caught out misrepresenting any of the products offered,” Charles says. “The aim is to take a lot of the stress out of the process.”

Insurers such as Allianz are already working towards meeting the requirements of the soon-to-be-enacted reforms – and with the ultimate objective of delivering better outcomes for consumers.

*All direct quotes were provided with consent of AADA on 10/08/21

treasury.gov.au, 'Cap on vehicle dealer commissions', (26 October 2022)

treasury.gov.au, 'Deferred sales model exemptions by class', (26 October 2022)

www.gtlaw.com.au, 'ASIC releases guidance on new design and distribution obligations', (26 October 2022)

www.theguardian.com, 'Banking royal commission: most recommendations have been abandoned or delayed', (26 October 2022)