The Deferred Sales Model (DSM) Explained

What is the Deferred Sales Model?

The Deferred Sales Model  (DSM) is a government reform that came into effect in Australia on October 5, 2021.

The Deferred Sales Model introduces a mandatory four-day pause between the sale of a principal product or service and the sale of add-on insurance.

A customer cannot be sold an add-on insurance product (such as extended car warranty cover) unless there has been a deferral period of four-days and it has ended. 

For example, if you purchased a vehicle from a dealership on Monday – four days must pass before an extended car warranty insurance can be offered to you as a customer. In this scenario, the earliest a dealership could offer to sell you extended warranty cover for your car is Saturday.

Why the Deferred Sales Model?

Deputy Chair of ASIC Karen Chester said, 'This is a key Government reform aimed squarely at improving consumer outcomes in the add-on insurance market. The pause in the sales process will give people time to consider the insurance they’ve been offered, and compare it with alternatives. It will reduce the risk of people buying insurance on the spot that is of poor value or just not right for them.

For example, you’ve bought a new Toyota which includes a 5 year Toyota warranty. 

The need for add-on insurance such as extended car warranty, could present poor value as your new Toyota is already covered for 5 years. Plus, the product may not be right for you as you may choose to sell your Toyota within those 5 years while the warranty is still in effect.

The time of expiry is when extended warranty provides the most value to the customer. They can then decide what they want to do with their Toyota and if they are comfortable to enter a period without warranty protection. 

Extended car warranty coverage can be purchased at any time at warranty.autoauto.com.au

Our take –

The Deferred Sales Model was designed to protect customers from poor value add-on insurance. This is positive for customers. The best time to buy extended car warranty coverage is as the vehicle approaches the end of its warranty period. This is the time customers can make an informed decision when the insurance is of most value to them – when their vehicle will be closer to no longer being protected.

In most cases, this is 3 – 5 years after purchasing the vehicle. Therefore the DSM is protecting customers from the pressure of selling insurance that is not required for a long time.

However, we’ve also noticed some unintended shifts in the market that have affected customers. Providers such as Allianz and PowerTorque (Toyota Financial Services) have paused the sale of all add-on insurance products in response to the DSM. By removing the products altogether, it’s made it more difficult for customers who want the product, to compare and then get coverage.

Without an insurance product from these large providers, many dealerships don’t have something to offer – regardless of the DSM. That means there are many customers who are purchasing used vehicles without warranty protection when they want it. They are not receiving the opportunity to reduce their risk of out of pocket expenses.

Extended car warranty insurance products provided by manufacturers are ceasing, which is in the interest of the manufacturer - as they hope customers will choose to purchase a new vehicle sooner, as opposed to holding onto their vehicle with extended car warranty cover.

For more information on Auto Auto’s extended car warranty, read our FAQ’s