Typical examples of add-on sales are the extended warranties offered by sellers of appliances or electronics. Car dealerships are another generator of substantial add-on sales that make a significant contribution to the top and bottom line. The proliferation of add-on products in a range of industries has meant regulators are now using behavioural economics to analyse the practice and offer up potential remedies for consumers – increasing regulation for brand owners. It is worth noting that regulators are highly aware of the issues surrounding add-on products and ASIC has conducted inquiries into both insurers, lenders and car dealerships.
The latest inquiries resulted in ASIC calling on insurers to significantly improve consumer outcomes as it found that many consumers are being sold add-on insurance products that are expensive and provide poor value. Many consumers find sales processes confusing and some can feel pressured to buy products they don’t understand.
ASIC’s report, The sale of life insurance through car dealers: Taking consumers for a ride, found that life insurance sold through car dealers is often substantially more expensive than comparable life insurance products, provides very low claim payouts relative to premiums, and is sold by car dealers who are paid high commission by insurers on sales.
The research found that:
Simultaneously, ASIC also released its report Buying add-on insurance in car yards: Why it can be hard to say no, which analysed qualitative research on the experience of consumers who are sold add-on insurance by car dealers.
This research found that many consumers who purchased add-on insurance products:
Regulators appear to have the view that the more obstacles in the process of making a buying decision, the better the quality of the decision and the less opportunity for miss-selling and overselling. However the impact for brand owners is greater restriction on the way in which they can promote or offer their products.
The AANA encourages its members to follow good practice principles in advertising and marketing communications ensuring they are prepared with a sense of obligation to the consumer. Selling an add-on product is a legitimate sales method but brands need to create a set of consumer values and in doing so, aligning what is good for the customer with what is good for the company.
You can find more information about the AANA codes of conduct for advertising along with an overview of advertising regulation here https://aana.com.au/advertising-regulatory-guide/