Breakdown insurance covers just $40 of bill
Zhihao Zhang of Christchurch paid $1405.80 for one year of mechanical breakdown cover when he bought a 2015 Mercedes-Benz last year.
But last month, he found the insurance would pay just $40 of the estimated $1200 repair bill.
Zhang said the policy he was sold specifically excluded Aufrecht, Melcher, and Grossaspach (AMG) cars, the division of Mercedes-Benz that produces performance vehicles. Hiswas an AMG series vehicle, but he said the sales agent from insurer Autolife failed to point out the exclusion.
‘‘I was misled about what the policy covered. I was not informed of the policy exclusion,’’ he said, his words translated into English by his wife, Serena Han. Had he known about the exclusion, he said he would never have bought the policy, and demanded a refund from Autolife.
Zhang has complained to the Insurance and Financial Services Ombudsman scheme, and the Commerce Commission. Autolife general manager Kishor Kumar said the company would not comment while the case was with the commission and the ombudsman.
In an email on April 8, Kumar said Autolife had refunded him $296.56 – the ‘‘unused’’ portion of the policy cover period, and cancelled the policy.
Zhang and Han realised they should have read the policy more closely before paying, but Han said Autolife was the expert on its insurance, and should have realised it was selling him cover that did not suit his needs.
Han said when the couple complained, Autolife told them they had had a seven-day coolingoff period in which they could have cancelled the policy, which was issued with a wrong vehicle model listed. She said AMG parts were expensive, and had to be imported, and the potential cost of repairs was the reason why Zhang bought insurance.
Autolife policies also excluded other high-cost performance cars such as Ferrari and Rolls-Royce.
Zhang bought his policy direct from the insurer, although mechanical breakdown insurance is more commonly sold by car
dealers, which earn sales commissions from insurers.
It was one of three kinds of insurance covered in a critical report from the commission late last year. Australian regulators earlier reported poor value from policies sold by car dealers.
During a three-year period, just under 100,000 mechanical breakdown policies were sold each year, the commission reported, earning premiums of just over $100 million a year for insurers.
The Motor Vehicle Financing and Add-ons Review included interviews with 62 policyholders, which suggested some were buying insurance they did not fully understand. The commission found the average annual premium for mechanical breakdown cover was $1047, and the average payout was $1246.
It calculated that the chance of a mechanical breakdown insurance policyholder making a claim, and having that claim accepted, was 15% and found claims were made on 22% of mechanical breakdown policies, and 70% of claims were
‘‘accepted’’ but that did not mean
the entire cost of repairs was covered, because excesses and exclusions were applied.
Autolife is a subsidiary of Beneficial Insurance. Pet insurance was Beneficial’s largest line of business, financial statements filed with the Companies Office show. Of the $15.7m in premiums it collected in the 12 months to the end of March last year, just $1.2m was collected by Autolife, which also sells car loan gap insurance and credit contract indemnity insurance.