EVEN though insurance plays a crucial role in the hire-purchase industry, it is not portrayed clearly as you may like. Last week, we highlighted that the two major hire-purchase (HP) dealers in the country have divergent approaches to insurance where one uses the term insurance and the other does not.
Insurance Disclosure
Under normal circumstances when consumers pay for insurance, they become the owners of the products they purchase. They are issued with the appropriate insurance policy and have the product under their names with the assurance that insurance will take care of the product and even the payments in the event of any mishaps. However, this is not the case for products bought under hire-purchase. In hire-purchase, consumers continue to pay insurance on the goods that do not belong to them. They also do not own the insurance title. The prima facie basis of disclosure is that the person who pays for a good need to have all the information on the subject of payment but this is not the practice in hire-purchase. The consumers are not given any details to make informed decision over the purchase.
The Reserve Bank of Fiji, which regulates the insurance industry, states in the report on "The Hire-Purchase Industry in Fiji" that: if there is credit-related insurance, the credit contract must clearly state who pays the insurance premiums and whose interest the insurance cover will protect. If the cost of the insurance is borne by the debtor, then the credit provider should be required to provide a copy of the insurance policy to the debtor.'
For the HP industry, the consumers pay the insurance — whether it is in the name of insurance or payment protection. As such, under RBF interpretation, consumers must be provided with a copy of the insurance policy. It is significant to note that non-disclosure of this information is a breach under the Consumer Credit Act 1999 as amended in 2006.
Consumer's Gain
The major hire-purchase companies claim that substantial number of its customers have benefited from its insurance plans. However, the only benefit available to consumers is that they are relieved from paying the outstanding balance. They do not get the replacement product if the product is damaged or lost as per their insurance plans. There is no evidence that all consumers who purchase insurance get the item replaced if it is lost due to a factor that is provided for in the insurance cover.
If a consumer, for example, paid 85 per cent of the loan and loses the product under insurance or payment protection, there is no written advice on whether the consumer would get a replacement value. For the payment protection plan, the rules are more easily ascertainable: the consumer does not get the 85 per cent equivalent value; only the debt due from him is covered by the insurance.
There is no disclosure of what the HP dealer has insured with its insurers — whether it is only the payment protection, or the value of the good. No information on claims or the insurance coverage scope is provided to the consumers.
Council's Concern
It is of great concern to the council that to date, the insurance industry regulator has not looked into this component of the insurance business in Fiji. This is negligence of duty and the council hopes insurance component in hire purchase industry will come under the radar of the regulators and concerned authorities.
Apology
In our weekly article last week, we stated that MH Homemaker charges insurance for the Queensland Insurance Company. This was incorrect. MH Homemaker has insurance with another insurance company and not Queensland Insurance Company. We apologise for any inconvenience this error may have caused.
* This is a weekly contribution by the Consumer Council of Fiji.