The Commonwealth Bank expects to refund $16 million to up to 140,000 people after it admitted customers were sold insurance despite the fact that they were not eligible to make claims.
Ahead of royal commission hearings that are set to delve into CBA's problems with "consumer credit insurance" (CCI), the country's biggest bank on Wednesday also said it would stop selling two types of insurance that promised to cover consumers for their credit card and personal loan repayments.
It made the decision after internal reviews into the products, which have been criticised heavily by regulators.
CCI products are promoted to customers as helping them meet their repayments if they lose their job, get sick or die, but the corporate watchdog has previously found the product was inappropriately sold to consumers, and was associated with "poor consumer outcomes."
On Wednesday, CBA's head of retail banking and designated chief executive Matt Comyn, signalled the bank had sold the products to customers for which the cover was not suitable. CBA had "found it hard to achieve the right balance between simplicity and accessibility on the one hand, and limiting the product to the right group of target customers on the other hand," Mr Comyn said.
"We’re working closely with ASIC 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," Mr Comyn said.
"While it is fundamental to the nature of insurance products that many customers who have them will not claim on them, and indeed they hope they won't, we need to ensure that they are at least properly eligible to do so.”
CBA is setting aside $16m million for refunds to an estimated 140,000 people.
It is understood the insurance policies required consumers to be working a minimum number of hours in order to make a claim, and the policy was sold to some in part-time work who did not meet this threshold.
CBA said it would start processes to withdraw the credit card and personal loan insurance products from the market "immediately." It will work with insurer AIA, which is buying CBA's life insurance business, to develop other products in this area.
Shani Goldsbro has been pursuing a TPD insurance claim for six years. She is hoping the royal commission into the banking and financial services sector will "shine a light" on situations like hers.
The first round of public hearings of the royal commission will include a case study on CBA's problems with credit insurance sold with home loans, personal loans and credit cards.
The latest refund from CBA comes after it announced in August that it would refund 65,000 customers $10 each for insurance sold when people were applying for home loans and credit cards.
The chief executive of the Consumer Action Law Centre, Gerard Brody argued other banks should follow CBA and withdraw from this part of the market.
"The junk insurance scandal has been allowed to go on for too long. The biggest bank in Australia has now effectively admitted that Consumer Credit Insurance is junk," Mr Brody said.
"It's time for others to follow suit and stop selling this rubbish. We’ve had banks and insurance companies profiting by, in effect, stealing from Australians for over a decade."This article was first published by : https://www.smh.com.auAuthor: Clancy Yeates