NZ FMA Finds “Poor Value” in Credit Card Repayment Insurance

Underwriters and distributors are directed to ensure their systems, processes and controls facilitate good customer outcomes.

New Zealand’s FMA (Financial Markets Authority) has found in a review that credit card repayment insurance (CCRI) is a “poor value product” for customers.

CCRI is a form of insurance which provides cover for a customer’s outstanding credit card repayments in certain circumstances, including in the event of bankruptcy, redundancy, injury, illness or death.

In a review, the FMA found that the CCRI poses a continued risk for those with existing policies in relation to eligibility to claim and ongoing suitability. Claim loss ratios were also found to be low when compared to how much insurers pay out of the premiums earned.

“These can be as low as 10 percent, in comparison to loss ratios of approximately 80 percent for health insurers and 47 percent for life insurers,” the FMA said. “CCRI products have narrow coverage definitions, which may not be fully understood by the customer.”

The FMA also found that underwriters and distributors are not displaying sufficient levels of customer care in their suitability assessments and communications with customers.

In addition, product reviews carried out identified “a large number of administrative errors” relating to systems and processes, which also disadvantaged customers.

To address the identified shortcomings in the CCRI, the FMA has directed underwriters and distributors to ensure their systems, processes and controls facilitate good customer outcomes, including by conducting root-cause analysis of issues to prevent reoccurrence of administrative failings.

“Responsibilities in distributor-underwriter arrangements should be clearly delineated. Product enhancements should provide real value to customers,” the FMA said.

The FMA said it expects underwriters and distributors to contact policyholders whenever their benefits or eligibility change, or at least annually, to ensure their CCRI cover is still suitable for their needs.

“Benefits, features and any changes in cover or eligibility need to be clearly communicated. Regular suitability testing should be carried out and underwriters and distributors should make a real effort to ensure customers are provided with timely and accurate information that they understand.”

The FMA advises the estimated 200,000 New Zealanders who have CCRI to check if they still need the product.

The regulator highlighted that providers complete only a limited level of underwriting when they issue a CCRI policy, and that they generally do not assess a customer’s medical and occupational circumstances.

“These factors mean numerous exclusions and prescriptive conditions are applied when someone makes a claim on the policy, so customers may not receive the benefits they expect.”

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