Take care before jumping on insurance relief, FMA warns

Wednesday, 20 May 2020

Households taking home loan 'holidays' will end up paying more in the long-run.

New Zealanders with personal insurance products are being warned to think carefully before they take the relief options being offered to them.

Insurers offering personal cover, such as life insurance, income protection and trauma policies, have responded to the Covid-19 outbreak with a range of measures to help customers keep their cover in place.

The Financial Markets Authority (FMA) has asked them to 'do what is possible to maintain or reduce costs for consumers at this time'.

Simply cancelling a personal insurance policy can have negative consequences if someone has developed a health condition in the time they have had the policy.

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Even if they took out new cover in future, it could mean they no longer had any protection in place for that particular health issue.

If you develop a health condition while your policy is suspended, you may not be covered in future,

Insurers' response to Covid-19 have varied from premium holidays for customers who have lost income, in which cover remains in place but they do not have to pay their premiums for a set period, to premium deferral options, where premiums are paid back later, and policy suspension – where there is no cover in place but premiums are not paid, either.

But FMA director of banking and insurance Clare Bolingford said there were other details that consumers needed to pay attention to. People should seek advice and not be afraid to ask questions to ensure they fully understood what they were signing up to, she said.

'When you're looking at what relief options to take advantage of, it's important to understand what cover might be in place still and whether your needs will be met if you take up those options.'

Some insurers would cover conditions that someone developed while their cover was suspended, but others would not.

“If you have trauma cover and that cover is suspended for the next two months, what does that mean?”

Bolingford said it was unlikely that a person’s need for the insurance policies would change simply because their financial situations had.

She said the FMA had been pleased with how insurers had responded to the Covid-19 crisis and the potential for hardship among clients. But she said when people were under stress, it was sometimes hard for them to take in information.

“We’re encouraging people to think hard and get advice.”

She said, while it would have been easier for consumers if insurers offered a standard relief option, as the banks had with mortgage holidays, the products were too different for that to be feasible.

Nadine Tereora, chief executive of Fidelity Life, said her organisation had focused on how it could help its customers as quickly as possible. It offered an option of premium deferral for 90 days for those who were struggling, with cover remaining in place.

Tereora said Fidelity had experienced a significant increase in the number of customers getting in touch.

She said its new Sharecare app would help it target useful and relevant information to individual consumers.

“As we emerge from Covid-19, our relationships with our own wellbeing – from the physical to financial to social elements – are changing as we focus on recovery and resilience and move toward healthier futures.

“Ultimately, if we can help our customers make positive changes to their health and wellbeing then that’s good for them, good for us, and good for our communities too,” she said.