"We have concerns that some customers who have been sold these products may not have been eligible to receive all of the employment-related benefits. We have also sought consumer groups' views on our concerns and they agree," said CBA chief executive Matt Comyn.

Potential action

CBA's provision of insurance added on to home loans, personal loans and credit cards will be examined in detail by the royal commission public hearings which begin in Melbourne on Tuesday.

On Monday Slater and Gordon said it was investigating the potential action against multiple banks – including the Big Four – over apparently worthless credit card insurance.

Mr Paull said it had reviewed the consumer credit insurance (CCI) policies of the big banks and found at-risk groups included the self-employed, people with pre-existing conditions and those whose only income is from Centrelink.

"The way that the product is sold is that it happens very quickly, the exclusions aren't mentioned and very often people aren't effectively asked to confirm if they want the product," he said.

"Many policyholders are ineligible to claim some or all of the available benefits and others are either completely unaware they have the insurance or incorrectly believe it is a requirement for obtaining a credit card."According to industry statistics, consumer credit insurance claims between 2011 and 2016 were rejected five times as often as general insurance claims.

Figures published by the prudential regulator show that in 2017 only 25 per cent of income from consumer credit insurance premiums was returned through claims payouts, which is almost three times less than the average payout ratio of 74 per cent for other types of insurance.


Working group

The Australian Securities and Investments Commission has established a CCI working group made up of consumer advocates and bank representatives.

Acting chief Peter Kell told the Insurance Council of Australia Annual Forum last week stakeholders had committed to a deferred-sales model for insurance sold with credit cards over the phone and in branches and urged insurers that distribute add-on insurance via car dealers to do the same.

Consumer credit insurance is often sold alongside financial products and provides coverage if a person becomes unable to meet repayments, usually due to death, disablement, serious illness or involuntary employment.

"The banks should know when this insurance is likely to be of no or limited value to their customers, however the evidence suggests that they have continued to push these products widely and have collected millions in premiums while doing so," said Mr Paull.

"But these reforms do not excuse the misconduct that has occurred in the past and essentially allow banks to pocket consumers' money and run."