Wednesday, January 2, 2008

Credit card issuing banks withdrawing insurance covers

The credit card holder’s be careful while banking on the insurance cover that came free with your credit card. It’s time to evaluate and get things clear from your bank whether insurance cover is continuing on your credit card or not. Most credit cards offered by banks no longer have a free insurance (life or non-life) cover and many customers might not have read the fine print to realize that they no longer have insurance protection.

Recently a case came into picture where R Rao, a media professional, received his monthly credit card statement from HDFC Bank. Besides from the details of the transactions made in the year, Rao was surprised to see a notification sent along by the bank said that effective January 1, 2008 the complimentary insurance covers on his Platinum Plus card will be withdrawn.

Until now, Rao has been depending on a Rs 1 crore cover due to air accident, Rs 5 lakh in case of a rail or road accident and Rs 50,000 for hospitalizations due to accidents. From now the only facility he will get on his card is a nil loss/stolen card liability cover which he gets after he reports the loss or theft. Rao will now have to assess his insurance needs and make sure he’s adequately protected. HDFC Bank like other banks (private and public) started withdrawing the insurance cover benefits sometime in 2006.

Says Parag Rao, head — cards portfolio and product management, HDFC Bank, "Customers were not viewing this as a value addition. We found that the hassle of filing and settling claims was creating a dissonance among customers. Also customers perceive other benefits like cash-back facilities as better value propositions than an insurance cover because a bulk of customers may not be aware of the facility or may never make a claim."

Another big reason for banks like HDFC, ICICI, Standard Chartered and even Citibank for withdrawing this facility is that at some point in 2006 credit cards started being offered free for life — without any annual charges. A Citibank spokesperson said that most banks withdrew the free offers due to the issue of costs.

As the insurance cover offered would be a group cover, it would be at a subsidized rate and would come with various inclusions and exclusions. The bank would have worked out the annual charges including some amount of the premium. On annual charges being removed the cost of the premium would have to borne by the bank. HDFC Bank’s Rao adds that the bank does look at the option of allowing the customer to pay the premium on their own. However in most of the cases the covers are insufficient to an individual’s needs or the inclusions and exclusions are so unsuited that continuing the cover does not make sense.

Last year ICICI Bank too withdrew the insurance covers on its classic or basic cards. It continues to offer insurance covers on some of its extremely exclusive cards. For instance, on their Signature Card, which has an annual fee of Rs 25,000, the card holder gets a personal accident cover in case of air accidents worth Rs 3 crore. But this card is not free.

Adds Sharad Mehrotra, of StanChart, "The complimentary insurance cover on non premium cards was discontinued from September 2004. We launched new card products that provide value to customers through other offerings like our Super value Titanium card which offers cash back facilities, but does not offer an insurance cover."

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