Stephen Jones (Whitlam, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

Before going into this concept of what 'good value' is—and that is at the heart of the amendment moved by the member for Kingsford Smith—I want to go back and reflect on the observations that were made by Commissioner Ken Hayne in his final report to the Treasurer, the report that brings this schedule in this bill, the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020, before the House. He made a number of observations arising out of submissions and evidence to the commission in relation to add-on insurance. He said:

I consider that add-on insurance should generally be sold under a deferred-sales model.

And it's important to make this point: here we are only talking about add-on insurance, not other forms of insurance—that is, insurance that is sold ancillary to and in connection with a product at the point of sale. Commissioner Hayne went on to say:

Under such a model, insurers or their representatives would be required to wait for a specified period of time before attempting to sell add-on insurance products to their customers …

This recommendation went hand in hand with the recommendation that there be a cap on the commissions that salespeople could earn for selling this sort of add-on insurance.

You can see exactly why he made this recommendation. He observed a sales culture operating within retail outlets, and in many instances the commissions that were being earned by the salespeople for selling the add-on insurance were greater than the earnings they got from selling the principal product. Let me explain. If they were selling a flight somewhere, the commission earned from selling travel insurance was a substantial part of the remuneration received by the travel agent. If they were selling a new car, the commission earned by selling add-on insurance associated with that car—but not the CTP, I hasten to add—was a substantial part of the remuneration of that salesperson, rather than the selling of the vehicle itself. Commissioner Hayne observed that this led to a very heady situation where all the incentives were there.

He also made quite a counterintuitive observation in the area of competition. Normally we would think that intense competition within a market would drive prices down and drive the quality of a product up. But what he observed in relation to add-on insurance is that actually the opposite is the case. He observed:

for those add-on insurance products—and this is a really important point—

So you can see the reasoning behind this. What he is, in essence, recommending is that there should be a very small window indeed. He reflected upon evidence given by ASIC in the royal commission on this very matter, where ASIC informed the commission:

In the current sales environment, combining the sale of the car, finance and add-on products into one process restricts the capacity of consumers to consider these matters and make rational, informed purchasing decisions. The deferred sales model aims to address this by inserting a pause into the sales process.

This goes to the heart of the amendment moved by the member for Kingsford Smith. If there is a rule and the government proposes to create an exception to that rule, that should be a very hard gate to pass through. If we are to take a consumer perspective of this, that gate should only be able to be travelled through if the product, as a class of product, is good value to the consumer, because that's what we're on about here—ensuring that, if the Treasurer uses the extraordinary powers that he is proposing to grant himself in this schedule to the bill, of exempting somebody from a general rule that the royal commission said should apply, then it should be good value to the consumer.

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