Banks stopped selling controversial insurance product

Banks have stopped selling credit card repayment insurance.

New Zealand's major banks have stopped selling an insurance product which has seen their Australian parent banks paying out millions of dollars in remediation to customers.

Of the five major banks just state-owned Kiwibank still sells credit card repayment insurance - a product now at the centre of a High Court case between the Financial Markets Authority and ANZ - the country's largest bank.

Last Friday the FMA said it had launched proceedings against the ANZ over allegations it sold credit card repayment insurance to customers who could never claim on it.

The action centres around two main issues - that the bank sold duplicate insurance to some customers and failed to cancel policies for ineligible customers.

The ANZ self-reported the issues to the FMA in June 2019 and had already compensated customers to the tune of $440,000.

The bank has acknowledged it took too long to report the issues which the regulator claims ANZ knew of as far back as September 2017.

ANZ is facing legal action from the Financial Markets Authority over credit card repayment insurance. Photo / Steven McNicholl

The legal action comes just weeks after Australian regulator ASIC (Australian Securities and Investments Commission), said it had secured the final tranche in over A$160 million in remediation to more than 434,000 consumers sold junk consumer credit insurance.

The payouts follow a report undertaken by ASIC in 2019 on the sale of the products by 11 major banks - including CBA, ANZ, Westpac and NAB - and lenders across eight years which found the design and sale of credit card insurance had "consistently failed consumers."

ASIC found that for insurance policies sold with credit cards, consumers received only A11 cents in paid claims for every dollar paid in premiums.

The issues was also raised during the Australian Royal Commission into banking in 2018 where Commonwealth Bank's Matt Comyn admitted it had sold worthless credit card insurance to more than 60,000 customers.

Australian-owned New Zealand banks ANZ, ASB, BNZ and Westpac all say they have stopped selling the products.

ASB was the first to stop selling credit card repayment insurance in February 2018. At the time it said that decision was unrelated to events in Australia and was "part of a wider year-long programme to simplify ASB's insurance offering for our customers".

Last week a spokeswoman said since ASB stopped selling CCRI it had tailored its communication to existing customers to highlight policy ownership, provide information on existing benefits, what and how they can claim, and how to access more advice and support.

She said it undertook regular product reviews to ensure that its products provided good customer outcomes.

"The most recent review in April 2020 concluded that CCRI is providing good customer outcomes. We do not have any remediations for CCRI outstanding."

A BNZ spokesman said it stopped selling credit card repayment insurance in October 2018 as a part of ongoing work to simplify its range of products and ensure they met customers' needs.

It did not have any remediation regarding miss-selling or duplication.

"BNZ continues to work with Cigna, who is the insurer, to ensure products have been sold appropriately and meet our customers' needs."

BNZ stopped selling credit card repayment insurance in 2018. Photo / Steven McNicholl

Westpac was the last to take the product off the shelf in October last year. A spokesman also attributed it to simplification.

"The removal of this product is in line with our strategy to simplify our product range and our business."

It also did not have any remediations in process.

State-owned Kiwibank remains the last major bank to sell the product.

Larrissa Vaughan, chief executive of Kiwibank's insurance business Kiwi Insurance said it had made significant enhancements to the product for new and existing policyholders in 2019 and took the regulators through these changes at that time.

Vaughan said Kiwibank had never had sales targets or individual sales incentives associated with the product.

"Most customers select this cover themselves when they apply for a credit card online. It is an active opt-in not an opt-out process. It is not possible to select it twice during the online application process and hold duplicate policies with Kiwi Insurance."

Nicola Sladden, New Zealand's Banking Ombudsman, said it had received 45 complaints about banks relating to the products over the last five years.

She said it was not a significant number given it saw around 4000 to 5000 cases a year.

"Having said that we have been very aware of concerns both globally and in New Zealand about CCI products that they are considered to be low value and have been alive to any trends."

She said of the 45 cases it had investigated six of them with five relating to the sale process and one to the claim decision.

"We are aware of the FMA announcement to take legal action against ANZ in relation to credit card repayment insurance policies. 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."

She said in some cases consumers were not clear what the payment was for on their statement and it had given guidance to the banks to encourage them to make changes to make it clear what the premium deductions related to.

That was back in 2017 and it did see changes from the banks as a result.

Asked if the products still had a place in New Zealand, Sladden said there was now a greater focus on ensuring all products and services were suitable and meeting customer's needs.

And she noted the fact that a number of banks had withdrawn the product from sale.