FMA 'low value' policy report: how are the banks involved?

“There has certainly been complacency,” regulator says

FMA 'low value' policy report: how are the banks involved?

A report by the Financial Markets Authority - Te Mana Tātai Hokohoko - has found the credit card repayment insurance (CCRI) product sold by lenders and life insurers to be of ‘low value’, and has urged the 200,000 customers who still hold the product to review whether they genuinely need it.

New Zealand’s major banks all stopped selling the product earlier this year, with many paying out millions of dollars to customers in remediation. The FMA also launched legal proceedings against ANZ, ultimately charging them $280,000 for selling policies that offered no cover or benefits to customers.

The FMA report found that CCRI was a ‘low touch’, product, meaning customers received limited engagement, inadequate suitability assessments, and little to no information on its terms and exclusions. The report noted it also had a high rate of declined claims and a low loss ratio, meaning providers were making significant profits off products that generated very few accepted claims.

Commenting on the product, New Zealand Banking Ombudsman Nicola Sladden said that she had received 45 complaints about banks related to CCRI over the past five years, and noted that there have been concerns “both globally and in New Zealand about CCRI products.”

Read more: FMA takes CLSAP NZ to court over alleged anti-laundering breaches

“We are aware of the FMA announcement to take legal action against ANZ in relation to credit card repayment insurance policies,” Sladden said.

“In considering these types of complaints, we assess whether the product was suitable for the customer’s needs, and whether the consumer was given sufficient information to enable them to make an informed choice about the product.”

FMA director of supervision James Greig (pictured) said that although many providers stopped selling CCRI earlier this year, a legacy book of around 200,000 customers paying their premiums still remains. He said the FMA will be expecting providers to undertake regular suitability assessments for all remaining active policies, and he urged them to take immediate action to ensure that customers are not paying for a product that offers them no value.

“We saw the ANZ case happen recently for CCRI, and obviously that was very high profile and relevant,” Greig said.

“We’re going to continue working with the industry in terms of that ongoing remediation, but we’ve set very clear expectations in terms of what we want to see from the industry.”

“We need them to be acting with urgency to remediate, but they also need to be undertaking suitability reviews at least annually - if not also upon certain life triggers, the obvious one being when someone turns 65, and would potentially lose some benefits,” he explained.

“That conversation around suitability has not been occurring, and it needs to be happening from here on out. We have the CoFI Bill coming into force next year, and that is going to give us a wider range of tools to address these sorts of concerns.”

Greig noted that because CCRI is a ‘guaranteed acceptance’ product, the sales process is often just a tick box or a ‘self-assessment’ on suitability, and this has ended up with customers who were not even aware that they held the policy.

Read more: FMA “unimpressed” by several adviser firms, says “stronger action” needed

The FMA review also highlighted a number of administrative errors made by those handling the product. These included customers being charged incorrect premiums, cancellation requests not being actioned, data errors, and customers not being contacted or having their cover cancelled when they were past the eligible age.

“A big concern is how many of the customers even know that they have the product,” Greig said.

“It’s a ‘guaranteed acceptance’ situation where there might simply be a tick box at the end of a form, and you may not have known what you were getting and how much it was going to cost. You could have had this product for a really long time, years and years, and only find out once you go to make a claim that you couldn’t actually get any benefit from it. That’s the real customer harm that we can see here.”

“We have seen remediation efforts since 2019, and this is a product that they have been keeping an eye on - but a lot still needs to be done,” he added.

“We’re calling people out here for not contacting their customer base, and for not reviewing suitability on an ongoing basis. Some providers have actually never spoken to their customers, and there’s a bit of ‘distributor pointing at underwriter, and vice versa’ going on - and that just highlights why the communication wasn’t happening.

“There has certainly been complacency, and that needs to be addressed from here on.”