Insurance industry calls for LMI transparency in wake of COSL complaints

by Amy Rosenfeld02 Dec 2013

The insurance industry has called for increasing transparency around Lenders’ Mortgage Insurance, after complaints to the Credit Ombudsman tripled in the past year. 

According to COSL’s latest report on operations, 58 complaints were received regarding LMI providers in the last financial year – three times the amount in previous years. 

The Insurance Council of Australia says consumer understanding of the product needs to be improved. 

“While LMI is a well-known product, consumers need to understand the purpose of LMI, which is to protect the mortgage granted over the property not the consumer,” says the ICA. 

The Insurance Council is in the process of launching a new literacy initiative to “empower consumers and businesses to make informed decisions about insurance”.

Insurance provider QBE says it has been working for a number of years with Government, regulators and consumer groups to increase the understanding of LMI.

"QBE LMI wholeheartedly supports increased transparency for consumers around the operation and value of lenders’ mortgage insurance.

"We also have a home buyer section on the QBE LMI website that clearly explains how lenders’ mortgage insurance works."

FBAA president Peter White says any move to improve consumer understanding of the product is a step in the right direction.

Next year all LMI transactions will require a one-page disclosure document, outlining the key facts of the products. This has come about through the FBAA pushing for increased transparency, says White, but he says the move doesn't go far enough.

"That key fact sheet will go partly down that path, but it completely depends on how they word it and what goes into that document. I'm nervous to say it will be the be all and end all."

The vast majority of borrowers are uninformed about what LMI actually is, says White.

"You ask someone what lender's mortgage insurance does and they might say that it protects the lender, if that. You'd be lucky to get that statement. People are uninformed about this product."

White is calling for "major reforms" of the product, including the way rebates are handled. Most borrowers are completely unaware they could be entitled to a rebate, says White.

"When you pay out your loan you pay back the lender every cent that's outstanding to them, plus any accrued interest in addition to any interest you've already paid along way... The lender's not entitled to any rebate. Any rebate that comes out of that should be paid back to the borrower, even if it's four years down track, it doesn't matter."

COMMENTS

  • by Aarong 2/12/2013 9:28:21 AM

    58 complaints instead of 20. So what? When numbers are this low to begin with its easy to say they have tripled. What if there were 2 last year and 6 this year? Would we need an enquiry? 20 vs. 60 is just about as ridiculous considering there are over 20 million people in the country. I've had enough of stupid, overarching, hamfisted, uneducated, patronising, needless regulation imposed on an industry that was the the best run one in the world. This was an industry that ran great when it was self regulated. I still marvel at the surprise that people have that when big brother took over our banking system, suddenly it started not working as well as it used to. What was the problem the NCCP cure fixed again?

  • by Tony 2/12/2013 9:37:46 AM

    LMI are playing god nowdays they are making decisions without any thought and are making decisions without any understanding and have no back bone when they need to be challenged and are unable to be contacted when it comes to challenging one of their decisions yes they have a place in the industry but are need to come back to the real world and and able to be contested on the decisions they make also the customer should be abel to get a written explanation from LMI on the decision they make and how they came to the decisions in writing so they can be contested it needed

  • by Country Broker 2/12/2013 9:41:35 AM

    Peter White is correct , if there is a refund because of a policy cancellation then the person who paid the premium ( the borrower) must receive that refund, even if the lender is the policy holder , if the lender retains the refund surely that is deceptive and unconscionable behaviour if it is not declared , it is something ASIC and the ACCC need to look at closley .
    In regards to the fact sheet , our aggregator has been using one for some time , and by giving that out it clarifies the position.
    I also am curious will the fact sheet declare that the lender is receiving an up front commission for each policy written?