Shine mulls class action against Aussie Home Loans over junk insurance

Aussie Home Loans could face a class action over the selling of junk insurance, with Shine Lawyers examining the potential for launching a case.

Shine’s early investigation suggests many Aussie customers already had cover via their superannuation or life insurance, or that even if they didn’t the mortgage protection policy was so restrictive around claims it was worthless.

Aussie Home Loans faces a potential class action over junk insurance sold with mortgages, as Shine Lawyers examines launching a case against the selling of products it says had “little to no value”.

Shine estimates tens of thousands of borrowers took up a mortgage protection policy via Aussie with their home loan to protect them should they become unable to make repayments due to illness, job loss or death. The law firm’s early investigation suggests many Aussie customers already had cover via their superannuation or life insurance, or that even if they didn’t the mortgage protection policy was so restrictive around claims it was worthless.

Aussie is a mortgage broker and provides access to products like insurance via third parties. In this case, Australian Life Insurance Distribution, a unit of ALI Group, distributed the insurance through a number of channels including Aussie brokers. ALI’s website lists Zurich Australia as the underlying issuer of some of its products.

Shine’s class actions practice leader Rebecca Jancauskas said the law firm was considering whether there was “vastly superior insurance” available to Aussie customers at the time they were sold the policies.

“In terms of the features of policies available there was vastly superior insurance at a much cheaper price than the mortgage protection plan was sold at,” she said. “It seems from our preliminary investigation that was the case so there was much cheaper and superior cover available to these individuals who took out the mortgage protection plan.”

An Aussie spokeswoman noted the firm was aware of reports regarding a law firm reviewing an insurance product offered by a third-party insurer through the Aussie network.

“Aussie offers thousands of mortgage and insurance products through its approved panel, but does not issue insurance itself,” she said.

“Aussie has not received any correspondence relating to these claims and therefore is unable to provide further comment.”

Lendi CEO David Hyman.

Aussie merged with online broker Lendi – with the combined group led by David Hyman – in a deal that completed last year.

The potential class action comes as mortgage holders brace for further Reserve Bank rate hikes this year, as the central bank seeks to curb inflationary pressures in the economy. Early this month, the RBA raised rates for a fifth straight month to 2.35 per cent, as part of an aggressive tightening regime.

The Hayne royal commission in 2018 exposed that many bank customers were sold junk insurance, that was of negligible or no value.

In 2020, law firm Slater and Gordon filed class actions against Westpac and ANZ related to the selling of junk insurance to vulnerable customers from 2011 to 2018. The actions alleged the insurance policies were added to customers’ loans and credit cards without their consent, or them being told it was optional.

The Federal Court in April ordered Westpac pay a $1.5m penalty for mis-selling consumer credit insurance with its credit cards and Flexi Loans to customers who had not agreed to buy insurance policies.

In the potential action against Aussie, Shine will allege the mortgage protection cover was unnecessary given some customers already had similar or better coverage, or because there were more affordable policies available.

The law firm’s investigation will look at whether Aussie brokers had a duty of care to act in customers’ best interests and whether it was breached. Shine is also assessing whether the sale of the mortgage protection product was “misleading or deceptive, or amounted to unconscionable conduct”.

“We’re investigating whether Aussie Home Loans exploited its clients by selling them a policy that was essentially worthless,” Ms Jancauskas said.

In a separate matter already in front of the courts, Shine is managing a class action against Colonial First State Investments and CommInsure. The action started in 2020 and alleges customers were overcharged for life insurance policies – spanning death, total and permanent disability, and income protection cover – held within their superannuation fund.