Kiwibank to stop selling controversial credit card repayment insurance

Saturday, 6 March 2021

Kiwibank will stop selling credit card insurance on April 1. It’s the last of the big banks to ditch the cover, which has been criticised for being poor value for customers.

Kiwibank will stop selling controversial credit card repayment insurance from April 1.

The bank, owned by New Zealand Post, the NZ Super Fund and ACC, is the last of the big banks to offer the insurance, which is designed to make repayments on credit card debt should cardholders fall ill, lose their jobs, or die.

Kiwibank’s Australian-owned rivals all stopped selling it in 2018 and 2019, following similar moves by their Australian parent banks, after evidence emerged of mis-selling and poor value across the Tasman.

On Friday, ANZ in New Zealand was fined $280,000 for misrepresenting credit card repayment insurance to some customers.

* $280,000 award sought after ANZ admits misleading customers over credit card insurance

* Financial Markets Authority files court proceedings against ANZ

Larissa Vaughan, chief executive of Kiwi Insurance, said the move to stop selling credit card repayment insurance was part of a product simplification project at the bank.

Data gathered by the Reserve Bank and Financial Markets Authority revealed the worst-value personal insurance sold by banks and insurers. First published in 2020.

“We will communicate with our existing customers in the coming months regarding the decision and will honour our obligations to our existing policyholders,” she said.

People with cover could keep it, if they wanted, but after April, anytime a customer switched to a new credit card, they would lose the cover.

In March last year, Kiwibank said it was no longer actively marketing the insurance, and staff were not incentivised to sell it. It said it had made changes to its cover credit card repayment insurance in 2019 to increase the number of claims that were accepted.

The big four banks all stopped selling credit card insurance in 2018 and 2019.

Criticism of credit card repayment insurance was more muted in New Zealand than in Australia.

But in 2019, Liam Mason, director of regulation at the Financial Markets Authority (FMA), said there were “very slim circumstances” in which credit card repayment insurance was likely to be of real value to consumers.

“We see this from the performance of the products, whether in terms of loss ratio or declinature rates,” Mason said at a conference of financial services companies.

“We also saw clear evidence of poor outcomes for customers from some of these products. Of concern, we see some are being sold to customers without their understanding of the limitations,” Mason said.

ANZ stopped selling credit card repayment insurance in 2019, just after confessing to the FMA that it had sold policies to some people who were too old to claim on the insurance, and had also sold duplicate policies to others despite it providing no more cover to them.

ASB stopped selling the insurance in February 2018, shortly after its parent bank Commonwealth Bank of Australia paid A$10m in refunds to 65,000 students and unemployed people unable to claim on the redundancy cover portion of its policies.

BNZ stopped selling it in October 2018, a full year before its parent National Australia Bank settled a class action lawsuit for A$49.5m with its lawyer, Sharon Cook, saying: “We can only move forward if we deal with the past, so that we can earn trust among customers and the broader community and grow confidence in the future of NAB.”

Westpac stopped selling credit card repayment insurance at the same time as ANZ.