Updated NZ credit insurance code lifts standards and clarity for borrowers
New Zealand’s non‑bank lending sector has tightened its rules around add‑on insurance in a move mortgage and finance brokers should factor into advice on car loans, personal loans, and debt protection for clients.
The Financial Services Federation (FSF) has relaunched its Credit‑Related Insurance Code, which sets out what consumers should expect from member insurers, along with their rights and responsibilities.
The revised code now covers a wider suite of products used alongside credit, including credit contract indemnity, payment protection insurance (PPI), guaranteed asset protection, motor vehicle cover, and mechanical breakdown insurance.
“All FSF members who provide credit-related insurance must adhere to the code,” executive director Lyn McMorran (pictured) said. “These members have reviewed the code and updated it to demonstrate how they go above and beyond what is required of them in law to ensure fair outcomes for their customers.”
More protection, plainer language
A key change is the explicit inclusion of mechanical breakdown insurance, which can cover major repair costs and typically includes 24/7 roadside assistance for financed vehicles.
The updated code has been rewritten in plainer language and reviewed by FinCap and both the financial and insurance ombudsmen, aiming to make rights, exclusions and claim processes easier for everyday borrowers to understand.
The code reinforces that most credit‑related insurance is optional and that consumers must be told what they are buying, what it covers, and how to claim. It mandates a minimum 14‑day cooling‑off period, allowing borrowers to cancel if they reconsider after signing their car loan or personal loan contract.
Case study underlines value of cover
To illustrate the role of PPI, FSF highlights a customer who added cover to a vehicle loan and was later diagnosed with leukaemia. When he had to stop work, the insurer met his monthly repayments and, after his prognosis worsened, paid off the remaining balance. The federation says the case shows how insurance can ease financial pressure during a difficult time by protecting both the borrower’s asset and family finances.
For mortgage and finance brokers, the strengthened code means credit‑related insurance attached to loans from FSF members should be more closely aligned with the conduct regime and fair‑outcomes focus, but it also raises the bar on explaining product features, costs, and alternatives to clients before they sign.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
