FMA Review Finds Deficiencies In Credit Card Refund Insurance

New Zealanders asked to determine his need

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Wellington, September 25, 2021

The Financial Markets Authority (FMA) has urged around 200,000 New Zealanders who have Credit Card Refund Insurance (CCRI) to check if they still need the product after a The review found it to be poor value for money.

The CIRB is a form of insurance that covers all or part of a customer’s unpaid credit card refunds in certain circumstances, including bankruptcy, termination, injury, illness or death of a customer.

Low value product

The FMA review confirmed that the CIRB is a low value product for customers.

This is based on several factors, including the limited level of underwriting that providers make when issuing a CCRI policy. The underwriting process involves an assessment and calculation of the amount of risk that the insurer assumes for the person purchasing insurance.

With the CCRI product, providers do not assess a client’s medical and professional situation. These factors mean that many exclusions and prescriptive conditions apply when a person makes a claim on the policy, so clients may not receive the benefits they expect.

The FMA report also found that vendors viewed the CIRB as a low impact product, with customers receiving little communication or engagement. Therefore, many customers have not made a complaint. Since claims are denied due to numerous exclusions or customers simply do not make claims, this has resulted in suppliers having low loss and loss ratios and generating significant profits.

The amount paid in claims to customers is low compared to the insurance premium received by providers.

The claims rate for the CIRB has been reported as low as 10%, meaning that around 10c is paid in claims for every $ 1 received in premiums. This compares, on average, to loss ratios of 80% for health insurers and 47% for life insurers.

CCRI withdrawn but winning

The Joint Reserve Bank of New Zealand and FMA report on the conduct and culture of the life insurance industry highlighted concerns about the CIRB in 2019 and since then insurers have stopped selling it to new customers. The FMA has remained focused on this product as around 200,000 New Zealanders still have policies in force, with insurers earning around $ 20 million in premiums per year.

“We have found that underwriters and distributors do not demonstrate a sufficient level of customer service in their relevance reviews and communications. Product suitability assessments are an essential part of customer service, where a customer’s personal situation should be checked to ensure that the product meets their needs and finances, ”the report said.

James Greig, director of supervision of the FMA, said New Zealanders should check if they have the CIRB and consider whether they still need it.

“We encourage customers to contact their supplier to see if this product is still right for them. Some vendors indicated that their sales process for the CIRB involved customers themselves evaluating whether the product was right for them, based on the product terms and conditions and disclosure documents. This is unacceptable, “he said.

Mr Greig said the Financial Markets (Institutional Conduct) Amendment Bill which is currently in parliament will introduce obligations and duties for insurers to prioritize clients.

“Insurers need to focus on managing driving risk to ensure that the interests of clients come first. This is a key requirement of the new legislation and therefore insurers need to invest in the systems and processes to meet these obligations and show that they put customers first, ”he said. .

The FMA found that suppliers insufficiently check clients ‘suitability at the CIRB, disregard individual circumstances and rely on clients’ ‘self-assessment’ of their suitability and have poor communications with clients at the CIRB .

The review also found that consumers misunderstood the features and benefits of the CIRB, with some not realizing that it was optional. He also revealed that a number of processes, systems and administrative failures, including incorrect pricing of premiums.

IRCC benefits declined dramatically when a consumer turned 65, many benefits – policy definitions that could trigger a claim – no longer apply, but consumer premiums were not reduced to reflect this.

Investigations in progress, remediation in progress

Mr Greig said the issues uncovered in Review are cause for concern and the FMA’s investigations remain ongoing. Some vendors have fixed, or are in the process of correcting, customers affected by one of these issues.

“The FMA will continue to engage with suppliers to ensure this activity progresses and is a priority,” he said.

About the exam

The review was conducted to better understand the IRCC’s suitability for consumers and followed the 2019 Life Insurer Conduct and Culture Review, which found that some insurance products offered low value.

Sixteen underwriters and distributors participated in the review, which involved collecting qualitative and quantitative data between October and December 2020. This included gross written premiums, claims ratios, CIRB offer dates, adequacy processes, product reviews and any known issues.

The FMA received 13 consolidated responses from insurers and distributors, some of which are related entities or are part of a parent organization.