When Courtney Ward received an unsolicited text message telling her she may be entitled to cash from a class action settlement, the Melbourne resident thought it was "a scam".

"I did not click the link for more information because it seemed like a scam," she says.

It was only when she received another text this year — and then complained to her sister who had gotten cash back from the Robodebt class action — that Ms Ward was prompted to investigate further.

She read up and learned that she may be entitled to compensation for $784 in insurance that she had long forgotten paying for when buying a car on finance back in 2015.

"I knew nothing of class actions. I'd never been involved in the class action before," she says.

Ms Ward is not alone.

Scores of Australians who have paid for so-called "junk insurance" are now clawing back hundreds of millions in cash from the finance sector through class actions, private services and remediation.

This comes as new federal reforms are being implemented today in an attempt to curtail the sale of the long controversial financial product.

What is 'junk' insurance?

Consumer credit insurance (CCI) has historically been tacked onto millions of credit card, personal and home loan contracts. It's typically marketed as a way for people to protect themselves from default.

"Junk insurance was commonly sold with products like cars and credit cards, and often people didn't know they'd purchased the product," Consumer Action Law Centre lawyer Katherine Temple says.

The problem was widely known about as far back as 2011, when the regulator, ASIC, warned the industry about the low-value products.

Its criticisms included:

• Consumers being sold CCI "without their knowledge or consent"
• "Pressure tactics and harassment" used to induce CCI purchases
• "Misleading representations being made during … sale"

Those criticisms have not changed. And the concerns were raised all over again during the banking royal commission and in subsequent reports.

One of the major issues with the insurance is that for every dollar paid in premiums, less than 10 cents are paid out in claims. Compare that to car insurance, which pays out almost 89 cents for every dollar paid in premiums.

Low payouts made CCI extremely profitable for banks and insurers. But another issue made it even worse for consumers: Many have been ineligible to claim the benefits.

Rampant mis-selling meant products such as income protection insurance were sold to people, including students and pensioners, who were not working and therefore unable to claim on it.

"It really took the banking royal commission to shine a light on it and push for more refunds," Ms Temple says.

Ms Ward's experience shows how many didn't even feel they had a choice about paying for it.

In her case, it was a $784 bulk sum that she paid when she got the car on finance at a Melbourne dealership in 2015.

"It was just sort of: If you're getting a car on finance, this is something you need to do. You just need to sign here and pay for it," she says.

"It insured me against not being able to make a payment, but I wasn't totally clear on that when I signed up for it."

The lump sum was also tacked onto her loan, so she ended up paying interest on it over time.

After signing up to the Swann Insurance class action this year, Ms Ward has recouped $534 — almost 70 per cent of what she paid.

"To get a bit of extra money, especially during these times, I was very happy," she says.

How much money are people now clawing back?

It's difficult to know exactly how much Australians have coughed up for this sort of insurance over the years.

Australians have so far clawed back at least half a billion dollars, which is likely just the tip of what's been paid to the sector.

Some are getting back their premiums through class actions, like in Ms Ward's case.

The Swann class action that she joined settled this year for $138 million. That was for add-on insurance sold via car dealerships between 2008 and 2017.

The fund that paid for that legal process was awarded $34.5 million in charges, $8 million in legal costs, and $194,000 in expenses.

There are also various legal firms running class actions against Allianz and AAI Limited over other policies sold in car yards.

When it comes to CCI sold on credit cards and loans, NAB has already settled for $49.5 million after a class action. Almost 50,000 customers received compensation.

That case was done on a no win, no fee basis by law firm Slater and Gordon, and lawyers took $3.8 million out of that payout for their services and legal costs.

"The NAB class action was the largest instance of consumer address against a big-four bank that's ever been achieved in the class action system," Slater and Gordon lawyer Andrew Paull says.

Slater Gordon is also leading class actions against the Commonwealth Bank, ANZ and Westpac, which could result in further payouts. These are also being done on a no win, no fee basis.

Then there's action pursued on behalf of consumers by the regulator. ASIC has recouped $380 million for 825,400 customers as part of a major remediation program implemented after the royal commission.

That sum was for a combination of policies sold by 11 major banks and lenders on credit cards, personal loans and home loans, as well as a chunk of insurance sold through car dealerships.

"It's been a very successful remediation program," Ms Temple says.

Private firms also getting in on the refunds

While class actions are a common method for recouping insurance for Australians, not everybody thinks they're the best method for reclaiming cash from insurance companies.

In 2017, Carly Woods started a private company called Get My Refund that takes on people's individual cases and goes direct to the insurance companies to demand a refund.

Ms Woods's expertise is notable: She once sold the insurance herself.

"I've worked in the industry for a very long time and I wanted to get back what was rightfully owed to consumers that had been ripped off," she says.

"I was working in the finance and insurance industry within the automotive industry. There's a lot of stuff that goes on there that people don't know about.

Nicole and Sam Karaitiana have so far been refunded thousands of dollars in junk insurance across numerous policies using Ms Woods's no refund, no fee service.

Ms Karaitiana found out about it through a social media advertisement and randomly clicked on it.

"I was a little bit sceptical. But look, I had nothing to lose," she says.

"I had all these loans that I paid off already. So I gave her all my details and all my documents. When she came back to me with the amounts I was blown away. It was over $8,000 in total."

Two policies were through Swann Insurance and MTA after the Sydney couple bought new cars. Another was for insurance on Ms Karaitiana's credit card.

Just like Courtney Ward, the couple had barely remembered that they'd ever paid for this sort of insurance.

"[The refunds] were all for insurance I didn't know we had," she says.

Get My Refund has so far recouped $4.3 million in premiums, of which it has taken a 30 per cent fee. For instance, in Ms Karaitiana's case, the company recouped $1,500 from Swann Insurance for a policy she'd paid $1,000 on. $500 of that head payout then went to Get My Refund.

Ms Woods argues this system is better for consumers than class actions, in which a large chunk of the settlement goes to legal fees.

The Consumer Action Law Centre's Katherine Temple urges consumer to do research before engaging private firms. She also believes class actions bring collective power to consumers.

The publicly funded legal centre also has a free online tool, Demand A Refund, to help people recoup CCI insurance premiums.

"For-profit refunds services can take up to 30 per cent of your refund, which is a really significant chunk. Our tool is completely free and independent," Ms Temple says.

So far, people have used the tool to seek $31 million in refunds from the industry. However, the legal centre doesn't have any data on how much of that has actually been recouped.

Ms Temple says they've had people use their service to request refunds for insurance sold as recently as in the past 12 months, which highlights that it's still a problem in the industry.

Will new reforms curtail the sale of junk insurance?

Today new reforms are being implemented by the federal government in a bid to help curtail the sale of add-on insurance.

The laws make it mandatory for consumers to be given a four-day window between buying the principal product, such as a car loan, and being asked to purchase the add-on insurance.

"The deferred sales model for add-on insurance ensures that the consumer makes a clear, informed decision when they purchase an add-on insurance product," Assistant Treasurer Michael Sukkar says.

The reforms have the support of ASIC, however consumers such as Ms Ward are sceptical.

"I was basically told, 'You have to have this in order to have your finance.' So it wouldn't have changed anything for me," she says.

Ms Temple believes the reforms have merit, however she's worried large chunks of the industry have been made exempt.

For instance, the travel sector has been excluded from the reforms. That means people don't get a cooling-off period after they are suggested travel insurance while going online to buy plane tickets.

"In recognition that there are circumstances where consumers legitimately need immediate access to insurance, some forms of insurance are exempt from the deferred sales model, such as travel insurance," Mr Sukkar says.