Credit card repayment insurance slammed as "extremely poor value for money".
Consumers receive as little as 11¢ in claims for every dollar paid in premiums for credit card repayment insurance, an investigation by the Australian Securities and Investments Commission (ASIC) found.
Since the spotlight’s been turned on these policies, major Aussie banks – including ANZ and Westpac – have stopped selling them to Australian consumers. However, it’s taken longer for them to be withdrawn here. ANZ only stopped selling the policies to new customers in August 2019. Westpac said it would remove them by the end of this year.
ASB stopped selling the product after its Australian parent CBA did the same. BNZ dumped the cover in October 2018.
We’ve been raising concerns about the promotion of this insurance and the poor value it provides consumers. The ASIC review provides more evidence this is a junk product.
The review slams credit insurance as “extremely poor value for money”. This type of insurance is sold to consumers who buy on tick and is meant to kick in if they run into difficulties paying off their debt.
However, the cover it provides may not be enough to repay the loan and is often subject to numerous exclusions. The review also highlighted the unfair practices used to flog the insurance, such as selling to consumers who weren’t eligible to claim under their policy.
ASIC is requiring lenders to repay customers with more than $100 million expected to be refunded to 300,000 consumers.
Insurers here can get away with offering policies with unfavourable terms because insurance is largely exempt from the Fair Trading Act’s ban on unfair contract terms. We’re campaigning for that to change.