MoneyHub’s review of MBI draws on ASIC reporting and policy exclusions in an effort to warn consumers about buying add-on insurance that may not be as valuable as it sounds.
MoneyHub Senior Researcher Christopher Walsh said:
“Having looked at the exclusions, policy limits and costs, we're not fans of MBI. While there has been no inquest here, the Australian Securities and Investments Commission (ASIC) has found that add-on insurance offered via car finance gave poor value. Specifically, add-on insurances (which include MBI and GAP insurance) paid out 9 cents for every dollar collected in policy fees in a recent investigation. That’s a bad deal, which has prompted refunds for customers mis-sold such policies”.
“There's no New Zealand data on payouts and how much the industry is worth, but we believe the policies may operate in the same or a very similar way to Australia. What this means is a lot of the money you pay for an MBI policy is likely paid to car dealers as a commission, with the rest going to the insurer”.
“MBI is wrapped up in the cost of car finance which makes it hard to understand the cost. Some customers are, arguably, unaware of what they're buying. When a car loan is $10,000 and add-on insurances are quoted as $2,000, the consumer usually pays interest and makes repayments on $12,000. The net effect of MBI is that it makes car finance more expensive. This is a bad deal for consumers from day one”.
“The added costs directly harm consumers because adding MBI (or any other add-on insurance) to car loan repayments makes the ongoing costs more expensive”.
“There are alternatives to MBI – self-insure for repairs by having an emergency fund, buy a reliable car known for cheap parts and get a pre-inspection and service your car are all options”.
“We believe there are so many exclusions in a typical policy isn't hard to know what would be covered should your car break down. For this reason alone, it’s hard to justify the cost of a policy given the complexity of cars”.
“Our new guide to MBI, exclusive on MoneyHub.co.nz, will continue to be updated as policies and players in the market change. We welcome transparent/online quotes and pricing, but right now that does not seem to be the case for many people considering this specific add-on insurance”.