Credit card repayment insurance (CCRI) is a “poor value” product that is often sold with numerous exclusions and very prescriptive conditions, resulting in consumers not receiving the benefits they expected, according to New Zealand’s Financial Markets Authority (FMA).

FMA came to its conclusions following a review based on responses from 16 underwriters and distributors of the product.

The regulator says the review is a follow-up to a 2019 Life Insurance and Culture examination where it was found “certain products often provided poor value, and consequently poor outcomes for customers, because of limited benefits, and misunderstanding of coverage and eligibility”.

While insurers have stopped selling CCRI since the 2019 review, about 200,000 New Zealanders still hold in-force policies with insurers earning around $NZ20 million ($19.3 million) in premiums annually.

CCRI is a sub-category of consumer credit insurance and is designed to cover the policyholder’s minimum repayments or outstanding credit card balance if they become unemployed, and/or unable to work due to serious illness or injury, and/or in the event of death.

The review, which involved gathering qualitative and quantitative data between October and December last year, found claim loss ratios can be as low as 10%, compared to about 47% for life insurers.

CCRI benefits also reduce significantly when a consumer reaches age 65, with many of the benefits – the policy definitions that can trigger a claim – no longer applicable, yet consumers’ premiums were not decreased to reflect this.

“The issues uncovered in this review are concerning and the FMA’s inquiries remain ongoing,” the regulator said.

“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.”

FMA Director of Supervision James Greig says the Financial Markets (Conduct of Institutions) Amendment Bill before Parliament will introduce obligations and duties for insurers to put customers first.

“Insurers need to focus on managing conduct risk to ensure customers’ interests are prioritised,” Mr Grieg said.

“This is an essential requirement of the new legislation, so insurers need to invest in the systems and processes to meet these obligations and show they are putting customers’ first.”

Click here for the report.