VIA backs loan add-ons
The Imported Motor Vehicle Industry Association (VIA) says a government regulator’s report shouldn’t be taken as saying insurance products sold by car traders are fundamentally wrong.
VIA supports the aim of the Financial Markets Authority (FMA) to ensure consumers are treated fairly when purchasing insurance and other financial products along with a vehicle.
The FMA’s review raises legitimate questions, says the association, about how some products are sold, how well people understand what they’re buying and the level of oversight insurers provide when products are distributed through intermediaries.
“Those are issues the industry should take seriously,” says Greig Epps, VIA’s chief executive. “However, the report shouldn’t be interpreted as saying dealer-sold insurance products are inherently inappropriate, or consumers should be prevented from purchasing useful protection when they buy and finance a vehicle.”
For many New Zealanders, a car is an essential household asset. Products such as mechanical breakdown and credit insurance can protect people from significant, unexpected repair bills at a time when they may be servicing a loan on their vehicle.
The right regulatory outcome isn’t simply to make such products harder to obtain, contends VIA. When there’s evidence of inappropriate sales practices, inadequate disclosure, poor training or problematic remuneration arrangements, such matters should be tackled directly and proportionately.
Epp adds the existing model also provides considerable convenience for consumers. “People commonly arrange the vehicle, finance and associated insurance at the same time.
“There’s nothing inherently wrong with that model provided customers understand what they are being offered, know the product is optional, understand the benefits and any limitations and exclusions, and are making a genuine choice.
“In fact, point of sale is genuinely the best time to offer these products. It’s convenient because customers are already discussing their vehicle and budget rather than needing to arrange cover separately later.”
The products offered are directly relevant to the vehicle and finance contract itself, such as loan protection or mechanical breakdown insurance. Epps says paying for them through a car loan also means customers can access cover they might not otherwise be able to afford upfront without taking out extra finance.
He says: “Insurers commonly offer significant discounts on policies written for more than 12 months, which is a saving generally only available when cover is arranged at the outset, alongside the vehicle and finance.
“None of this diminishes the need for good conduct at the point of sale. Customers must be clearly told the insurance is optional, what it covers, costs and any exclusions that apply.
“Dealers must make sufficient enquiry to ensure the products meet the customer’s needs, that they are fit for purpose and can be purchased affordably.
“When that standard is met, this model isn’t just convenient. It’s often the most practical and cost-effective way for customers to get appropriate cover.
“We would be concerned if isolated examples of poor conduct were used to justify broad regulation that imposes significant cost on responsible businesses or reduces access to products that provide genuine consumer protection.”
The FMA itself has identified intermediary oversight, training and sales processes as areas requiring improvement. These “practical issues” can be addressed without assuming the whole model needs to be dismantled.
“VIA will continue working with insurers, the Financial Services Federation and other industry participants as the FMA’s work develops,” adds Epps.
“Our position is straightforward. Protect consumers, deal firmly with poor practice where it exists, but base any further regulation on clear evidence of the scale of the problem and likely consequences of intervention. Good regulation should preserve informed consumer choice while dealing with demonstrable harm.”
