Credit card reimbursement insurance warning: 200,000 people with bad value coverage
An estimated 200,000 people still have low-value credit card reimbursement insurance and should consider giving it up, according to a financial watchdog.
The Te Mana TÄtai Hokohoko Financial Markets Authority (FMA) says that the exclusions in the policies lead to the rejection of “many” claims.
Credit Card Refund Insurance was designed to make repayments on behalf of a customer if they fall ill, lose their job, become disabled, go bankrupt, or die.
But an FMA report said the insurance delivered super-profits to insurers and paid as little as 10 cents in claims for every dollar in premiums collected.
The regulator even found that the systems of banks and insurers were so poor that when people with credit card reimbursement insurance died, their estates were not informed that a claim could be filed, and in in some cases, banks and insurers continued to deduct premiums.
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Banks have stopped selling credit card reimbursement insurance in New Zealand after FMA criticism in 2019 and sellout scandals in Australia and Britain, but concerns about it in New Zealand dated back to 2013.
Despite stopping their sale, the banks did not cancel policies they had already sold, and the FMA estimates that insurers have collected $ 20 million in premiums each year on around 400,000 policies that have failed. not been canceled.
Communication from insurers and banks that sold credit card insurance, and consumer understanding, was so poor that people forgot they had it and never submitted claims, FMA found. .
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The regulator found that some people believed they had no choice but to take insurance if they wanted a credit card.
Some people continued to pay their premiums, even when they got so old that many of the benefits of credit card insurance no longer applied to them.
Often, after an insured reached age 65, the fine print of credit card insurance policies precluded them from making claims for being terminated, bankrupt, or disabled.
“Several participants told us that they do not contact customers when such a step occurs,” said James Greig, director of supervision of the FMA.
The systems of insurers and banks were so poor that when policyholders died, their estates were not always contacted, thus avoiding claims. Sometimes the bonuses were taken from the credit cards of the deceased.
âWe have seen several failures in this space,â said Greig.
The FMA also found that insurers do not terminate policies even when policyholders are so old that they cannot make any claims, or when they have told their bank or insurer that they no longer want them. .
When banks sold credit card insurance, cardholders had little to no help deciding if it was right for them.
“This is unacceptable,” said Greig.
“New Zealanders should check if they have credit card reimbursement insurance and ask if they still need it,” he said.
Strict new laws due to come into effect next year would force banks and insurers to ensure that customers’ interests come first, he said.
This would force banks and insurers to check annually whether credit card reimbursement insurance was suitable for each insured.
Banks and insurers could face legal action, he said.
“The issues uncovered in this review are cause for concern and the FMA’s investigations remain ongoing,” he said.
Some insurers had set aside money to compensate customers.
âA number of vendors have extensive remediation plans,â said Greig.
The largest insurers in the market were Cigna (the insurer of ANZ, Kiwibank and BNZ policies), Westpac Life, AIA Life (the insurer of ASB policies) and Hallmark Life (the insurer of GEM cards).
Cigna’s latest accounts show $ 9.3 million was set aside for compensation at the end of December, but don’t say why.
ANZ was fined $ 280,000 in March for misleading customers about credit card insurance and, in some cases, double-billing them. ANZ stopped selling credit card reimbursement insurance in 2019.
Kiwibank was the last of the Big Five to stop selling credit card reimbursement insurance, ending sales in April.
ASB stopped selling the insurance in February 2018, shortly after its parent bank, the Commonwealth Bank of Australia, repaid AU $ 10 million (NZ $ 10.34 million) to 65,000 students and unemployed unable to claim the termination coverage portion of its policies.
BNZ stopped selling it in October 2018, a full year before its parent company, National Australia Bank, settled a class action lawsuit for A $ 49.5 million.
Westpac stopped selling credit card reimbursement insurance in 2019.
Hallmark Life, which provides loan repayment insurance for GEM credit cards, stopped selling loan protection insurance last year.