Urgent solutions needed to fix exploitative insurance products aimed at vulnerable Kiwi

Vulnerable consumers who buy motor vehicles on finance need to be protected from poor value and exploitative add-on insurance products that remove tens of millions of dollars each year from the pockets of the poorest families in society.  

The Salvation Army’s short advocacy paper, Not Adding Up: Spotlighting Add-on Insurance in Aotearoa, takes a deeper look into the murky and highly technical world of add-on insurance products that are usually sold alongside vehicle financing for second-hand cars.

“In light of the huge cost-of-living and inflation increases, spotlighting these financial hardship issues is critical for some of the most vulnerable people in the community,” says report author Ronji Tanielu.

“We’ve found that while car insurance is very important for consumers, these add-on insurance products are often low value-for-money options for many New Zealanders, especially the poorer people and whānau that we serve and support.”

The paper focusses on the massive mark-ups that dealers add to the wholesale price of these products and the major pressure placed on car buyers at the point of sale for second-hand cars.

The paper follows on from the Commerce Commission’s 2021 review into this industry. Over three years, the Commission found that (for the 15 insurers involved in their review), these companies admitted collectively selling an average of 153,918 add-on insurance policies each year, collecting premiums of $148 million per year, but only $43 million in claims was paid.

In the example of Credit Contract Insurance (also known as Payment Protection Insurance), the Commission found that between 2018 to 2020, for every dollar of premium collected by the lenders/insurers, only 10 cents were paid out in claims to the consumer.

“This is clearly not a competitive, value-for-money market,” says Mr Tanielu.

“The current paper presents innovative and proven solutions that have worked overseas and can work in Aotearoa to fix this industry and protect poorer, struggling whānau. This includes calling for a deferred sales model (to give consumers more time in making their insurance decision), banning flex commissions and developing a community based ‘Demand a Refund’ campaign for affected people.”

The full paper is available on our website: https://www.salvationarmy.org.nz/not-adding-up

For enquiries contact: 
Ronji Tanielu, Principal Policy Analyst. Mobile: 021 536 892
The Salvation Army Territorial Media Officer, 021 945 337, email: media@salvationarmy.org.nz (The Media Officer responds to enquiries from media outlets and journalists. If you would like to donate, are in need of help, or have some other non-media-related enquiry, please call 0800 53 00 00.)