New Zealand’s Financial Markets Authority (FMA), is advising an estimated 200,000 Kiwis that may have invested in credit card repayment insurance (CCRI) to assess their need for the product. This is following a review that found the product offers ‘poor value and consequently, poor outcomes for the customers’.
CCRI policies are designed to cover the insured’s minimum repayments or outstanding credit card balance in the event they become unemployed or otherwise unable to work due to such issues as illness, injury or even death. The report found that though many providers had withdrawn this product from the market, there were still several hundred thousand policies still running, with the policyholders not understanding the product.
The report further highlighted ANZ New Zealand for having breached the law by charging some of its customers for CCRI policies that offered no cover or benefit. They were found to have misled clients about the cover offered by said policies. The High Court fined ANZ to pay $280,000 in civil penalty for this offence. The recent review has covered 16 underwriters and distributors with more expected to go under the scope.
Underwriters and distributors were also admonished for not providing sufficient levels of customer care in their communications and suitability assessments of customers. In response to queries, the underwriters and distributors tended to place the blame on each other when it came to poor communication with customers. Each claimed the other was responsible for communication with CCRI customers.
On the issue of suitability assessments, it was revealed that some customers were subjected to self-assessment in determining if the product was suitable for them. All this even when they had a poor understanding of what the CCRI policy features and benefits meant for them and how to make a claim. Some customers did not realize that the cover was optional at the time of applying for a credit card. The particular customer circumstances were not factored into the process.
The FMA found failures in the sales process for CCRI policies and that allowing self-assessment was unacceptable. For those that did review their CCRI products in the last two years, several issues were noted. These include problems of customers being charged incorrect premiums, cancel requests not being acted on, cover not being cancelled when customers surpassed the eligible age and data errors.
The review established that about 400,000 policies still exist, pertaining to about 200,000 customers paying annual premiums of up to $20 million. Despite banks no longer selling the policies following criticism in 2019, they did not cancel existing policies that have continued to make them money. With the claim loss ratio for CCRI being as low as 10%, it was found that this insurance was making super-profits for insurers. In some cases, premiums were still being collected even after policyholders had died, with estates not being notified that they could make a claim.
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