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13-195MR Claiming on consumer credit insurance – a mixed bag
An ASIC report released today found that there is significant room for improvement on consumers' claims experiences for credit card-related consumer credit insurance (CCI). This includes cases where consumers received a payment or benefit under their policy.
CCI is designed to protect consumers if something happens to them that affects their ability to meet their credit repayments. Typically, CCI covers consumers in the event of loss of income due to injury, illness, involuntary unemployment and death.
The Report 361 Consumer credit insurance policies: consumers’ claims experiences (REP 361) found that process of claiming on a CCI policy can be stressful and costly for consumers who are already experiencing significant events in their life like the loss of a job or illness.
While consumers whose claims were accepted were generally pleased to receive a benefit payment that assisted them, they were not always happy with their experience, because:
their benefit payment was less than they had expected, or payments were not made in a timeframe consistent with credit card repayment due dates.
Consumers whose claims were denied generally felt that they were worse off for making a claim, given the time, money and effort they spent to complete forms and evidence their claim. Also, these consumers:
were often upset that they had been sold a policy without being made aware at the time that important exclusions and conditions on their policy could or did apply to them, and generally thought that if their credit card provider had offered them their policy then they must be covered.
ASIC Deputy Chairman Peter Kell said, ‘It is evident from the research that the more informed a consumer was at the time of purchase, the more likely they were to have a successful and positive claim experience.’
In 2011 ASIC released Report 256 Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions (REP 256). REP 256 found that significant improvements could be made to sales practices, and made 10 recommendations to minimise the risk of CCI being mis-sold.
‘This report confirms the importance of the recommendations made in REP 256, which were designed to address some of the poor consumer experiences identified in this research. Industry has committed to adopting these recommendations, and we expect changes made as a result of our earlier work will already be leading to better outcomes for consumers,’ Mr Kell said.
The research also identified the following in relation to consumers' experiences making a claim on their CCI policy:
most consumers did not know how to make a claim or who to contact (often they contacted the entity who sold them their policy and not the insurer); most consumers did not make a claim promptly some consumers struggled with the claim assessment process which included completing long forms and providing documented evidence (such as medical certificates) the longer it took for a claim to be finalised the greater the financial impact this usually had on consumers, and consumers had mixed experiences making a complaint about their claim.
ASIC is currently conducting an industry surveillance focusing on the handling of CCI claims, complaints and cancellations. ASIC will use the findings in REP 361 to assist and inform this work. We will continue to work closely with industry to improve consumer experiences and outcomes in relation to CCI, and we will also take enforcement action when necessary especially where CCI has been mis-sold.
Based on statistics reported by the Financial Ombudsman Service approximately 11.6% of claims made on CCI policies are denied. This is relatively high compared to most other general insurance products, which generally see between 1–5% of claims denied.
For REP 361 Susan Bell Research conducted intensive individual interviews with over 50 consumers who had claimed on a CCI policy for their credit card. This included consumers who had claimed on their CCI policy because they had to stop work due to an accident, illness or redundancy.
The research was undertaken with the cooperation and assistance of nine insurers, who wrote to customers inviting them to take part in this research. This assistance was also facilitated by the Insurance Council of Australia and the Financial Services Council.