200,000 credit card repayment insurance holders urged to review product found to offer 'poor value'

James Greig, Financial Markets Authority director of supervision. Photo / Supplied

About 200,000 users of credit card repayment insurance are being urged to check if they still need it after a review by the regulator found it offered poor value.

The insurance can be used to cover an outstanding credit card balance if a person gets made redundant, falls ill or goes bankrupt.

But research by the Financial Markets Authority found few people are able to claim on the insurance because of its many exclusions and many others don't claim because they received little communication about the product.

That meant for every $1 paid in premiums by customers, just 10c was paid in claims giving providers a very low loss ratio of 10 per cent and a high profit on the product.

The loss ratio for health insurance was 80 per cent and for life insurance it was 47 per cent, according to the FMA.

Providers stopped selling the product a few years ago after concerns were raised about it in a joint review by the Reserve Bank of New Zealand and FMA into conduct and culture of the life insurance industry in 2019.

But about 200,000 New Zealanders still had these types of policies, with insurers earning around $20 million in premiums annually.

James Greig, FMA director of supervision, said New Zealanders should check if they have credit card repayment insurance - and if they still need it.

"We encourage customers to contact their provider to check if this product is still suitable for them."

Greig said some providers had indicated their sales process for the insurance had involved customers "self-assessing" whether the product was right for them, based on product terms and conditions, and disclosure documents.

"This is unacceptable."

The FMA report found providers of the insurance did not do enough to check the suitability of the product and had poor communication with their customers.

Consumer understanding of the products features and benefits was poor with some not realising it was optional.

Providers also revealed a number of processes, systems and administrative failings, including incorrect premium charging and failing to cancel policies when requested.

In particular the report found the benefits of the insurance reduced significantly when a consumer reached age 65, with many of the benefits no longer applicable, yet consumers' premiums were not decreased to reflect this.

ANZ New Zealand this year admitted breaches of the Financial Markets Conduct Act after the FMA alleged the bank charged certain customers for CCRI policies that offered no cover or benefit, and claimed ANZ breached the Act by making false and/or misleading representations about the cover offered by those policies.

The High Court of New Zealand ordered ANZ to pay a $280,000 civil penalty.

Ongoing inquiries

The FMA said inquiries into other providers were ongoing.

"Some providers have remediated, or are remediating customers affected by any of these issues. The FMA will continue to engage with providers to ensure this activity progresses and is prioritised."

The review covered 16 underwriters and distributors and involved gathering qualitative and quantitative data between October–December 2020.

The providers included AIA New Zealand, ANZ NZ, ASB, BNZ, Cigna Life Insurance, Consumer Insurance Services Limited & Flexi Cards Limited (now Humm (NZ) Limited), Hallmark Life & General Insurance Company and Latitude Financial Services, Kiwibank, Kiwi Insurance, Southland Building Society, The Co-operative Bank, TSB Bank, Westpac Life New Zealand and Westpac New Zealand.