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Insurer Ordered to Refund GAP Premium After Unfair Sale

Insurer Ordered to Refund GAP Premium After Unfair Sale

Insurer Ordered to Refund GAP Premium After Unfair Sale?w=400
A significant decision has been made as an insurer, Eric Insurance, is required to refund a consumer for a Guaranteed Asset Protection (GAP) policy deemed unfairly sold 13 years ago.
The policy stemmed from a $31,000 vehicle loan, and the consumer argued that misleading practices influenced this purchase.

The issue originated from a car sales agent's assertion that the GAP policy was necessary for loan approval, costing a premium of $1495, which was included in the borrowed sum. The consumer argued that the policy held little value since it only partially covered the intended financial gap and was represented as mandatory without clear disclosure of its optional nature.

The Australian Financial Complaints Authority (AFCA) conducted an investigation and found no record of a Product Disclosure Statement (PDS) with adequate information provided to the consumer. While Eric Insurance provided evidence of a PDS indicating that the policy was optional, no confirmation was available to prove its provision to the consumer.

A significant part of the complaint involved the nondisclosure of a hefty 61% commission paid to the sales agent. Although AFCA noted that high commissions alone do not constitute unfairness, they acknowledged the potential for such incentives to foster unethical sales tactics.

AFCA concluded that the consumer likely believed the GAP policy was a prerequisite due to the timing and manner of the sales process, suggesting misrepresentation and high-pressure sales tactics. The lack of transparent information compounded these concerns.

As a result, Eric Insurance has been instructed to refund the policy premium along with applicable interest and any inflation-related adjustments to the consumer.

This ruling underscores the ongoing challenges in ensuring transparent and fair sales practices within the insurance sector. For consumers, it highlights the importance of thoroughly understanding financial products and questioning additional charges tied to loans.

Published:Wednesday, 28th May 2025
Source: Paige Estritori

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