Consumer NZ has warned New Zealanders about low-value add-on insurances being pushed when buying a car.
These add-on insurance products include mechanical breakdown insurance (MBI), guaranteed asset protection (GAP), credit contract indemnity (CCI) and payment protection insurance (PPI). These insurances are sold as protection in case the consumer is unable to pay off the loan, or if the car breaks down, Consumer NZ said.
According to the consumer advocacy group, New Zealanders paid around $442 million in premiums for add-on insurance at car yards, but only $128 million was paid out in claims.
“There are so many exclusions and conditions on these insurance products, it’s incredibly easy for a consumer to get hoodwinked into paying for a policy that provides very little protection,” said Jon Duffy, Consumer NZ chief executive. “Often, MBI policies don’t provide much more cover than the Consumer Guarantees Act (CGA), so we’d recommend consumers really consider whether they need it. Under the CGA, if you buy a vehicle which isn’t of acceptable quality, the dealer is required to sort it out. Investing in a pre-purchase inspection and regular car servicing could be a better investment.”
CCI and PPI are meant to cover payments if the consumer can’t make them due to sickness, hospitalisation, accident, redundancy, bankruptcy or death. However, these policies come with a long list of exclusions, including but not limited to anxiety, stress and getting caught in a natural disaster, Consumer NZ said. In the case of redundancy cover, three out of four providers will only pay after 28 to 30 consecutive calendar days of redundancy.
Duffy said that most CCI or PPI products only kick in after five to seven days in the hospital. However, the average hospital stay for acute injuries is just 2.62 days, meaning the consumer will not be able to make a claim.
In 2021, the Commerce Commission released its Motor Vehicle Financing and Add-ons Review, which found that car dealers earned an average commission of between $304 and $636 from each add-on insurance sale.
“We think add-on insurance is a nice little earner for car dealers and insurers, but a total rip-off for consumers,” Duffy said.
