A new code designed to prevent Kiwis from taking out insurance policies that are overpriced, that don't pay out when needed, and that have been forced on them to buy is soon to be launched.
The Financial Services Federation (FSF) will roll out the Responsible Credit-Related Insurance Code next week, which covers policies that are sold alongside credit products such as loans and hire-purchase agreements.
The new code sets out what responsible providers should do, explains consumer obligations, and was designed to pay out policyholders who are unable to work due to illness, accident, or redundancy, but needs to keep paying back the loan, Fairfax Media explained.
FSF executive director Lyn McMorran said her organisation aims to highlight the value of responsibly sold insurance, saying: "It's one of the things that's good to have, as long as it's sold responsibly.”
McMorran noted that there had been cases of mis-sold credit-related insurance in New Zealand – where people had been sold policies that would not pay out for them, such as beneficiaries being given income protection policies, the report said.
She added that there had also been instances where people were told to take out a policy from a specific provider if they wanted a loan. She explained that while lenders could require insurance for a loan to be granted, they could not dictate where the policy should be from.
Another issue the new code sets out to weed out are the “outrageous” costs charged for the insurance cover.
"We also hope the code will be used as a reference for regulators to understand that there is a responsible credit-related insurance sector in New Zealand. The code is intended to assist them in identifying what responsible behaviour looks like so that they can perform their enforcement duties where necessary.
"It is also a way for FSF members to say, 'This is who we are and what we stand for'. We want consumers to be aware of and understand the value of credit-related insurance, because being informed and having protection is important."
Commerce minister Jacqui Dean also commented: "The code is a good example of providers taking their responsibilities seriously and assisting consumers to make informed decisions," Fairfax reported.
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