A company which provides payment protection insurance has admitted a possible breach of the Fair Trading Act and will pay affected consumers about $37,000 in an out of court settlement with the Commerce Commission.
Beneficial Insurance Limited sold a credit contract indemnity policy to provide cover for motor vehicle and personal loan payments in events such as redundancy, sickness or injury.
From 2006, people who made claims on this policy were only paid out a percentage, ranging from 20 to 90 per cent of the loan payments, if they had received partial income from another source such as the Accident Compensation Corporation. However, in the Commission’s view, the policy wording and statements on Beneficial Insurance’s website meant that consumers were likely to expect that the full amount of loan repayments would have been covered.
It appears that claimants only found out that Beneficial Insurance would not pay the full credit contract payment when their claims were processed. One claimant who suffered an injury that prevented him from working received only $72 from Beneficial Insurance in total for the four week period he was off work, instead of the $372 that he was required to pay under the credit contract. The claimant went into default on the loan and was charged default interest and fees.
As part of the settlement with the Commission, Beneficial Insurance has acknowledged that it may have breached the Fair Trading Act and it has agreed to pay the 44 affected claimants a total of $37,000, which includes the difference between the credit contract payments and the partial payout already made by Beneficial Insurance together with any default interest and other charges incurred on the actual loans. Beneficial Insurance has already paid out to the majority of affected claimants, and is in the process of notifying claimants who no longer have active loan accounts.
“Insurance companies need to ensure that if there are limitations to a policy, these are clearly disclosed to consumers before they purchase the insurance,” said Graham Gill , Commerce Commission’s Manager of Fair Trading, Auckland . “Applying conditions that have not been adequately disclosed risks breaching the Fair Trading Act. Consumers need accurate information so they can make informed decisions about what type of insurance cover will be best for them. If the consumer is only made aware of these limitations after the insured event happens, it is too late.”
“We encourage consumers to think about whether they need the insurance product being offered and whether it gives them the cover appropriate to their circumstances,” said Mr Gill. “Before buying insurance cover, take the time to check the policy documents, ask questions about when cover will be provided and what payments will be made, ask about any limitations or exclusions, find out who is underwriting the policy and find out as much as possible about the claim process.”
During the course of the Commission’s investigation, Beneficial Insurance changed its practice and from April 2009 agreed to pay the full amount of credit contract repayments for the claim period provided the claimant did not receive full compensation from other sources.
Claimants who purchased credit contract indemnity from Beneficial Insurance, who made successful claims on that policy between 2006 and 2009 and who believe that they may be entitled to a refund, should contact Beneficial Insurance directly.