Mechanical breakdown insurance covers $40 of $1200 repair bill

Published Apr 24, 2022.

Christchurch man Zhihao Zhang​ paid $1405.80​ for one year of mechanical breakdown cover when he bought a 2015​ Mercedes-Benz last year.

But when he had to make a claim in March he was horrified to find the insurance would pay just $40​ of the estimated $1200​ repair bill.

Zhang​ said the policy he was sold specifically excluded AMG​ cars, which is short for Aufecht, Melcher, and Grossaspach​, the division of Mercedes-Benz that produces performance vehicles.

His car was an AMG series vehicle, but he said the sales agent from insurer Autolife failed to point the exclusion out.

“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 realised 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, and Autolife general manager Kishor Kumar said the company would not comment while the case was with the Commerce Commission and the ombudsman.

In an email to Zhang on April 8, Kumar said Autolife had refunded him $296.56​, which was 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 for it, but Han said Autolife was the expert on its insurance, and should have realised it was selling him insurance that was not suitable for his needs.

Han said when the couple complained, Autolife told them they had had a seven day cooling-off 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 from Singapore, and the potential cost of repairs was the reason why Zhang bought insurance.

Autolife policies also excluded other high-cost performance cars like Ferrari and Rolls-Royce.

Zhang bought his policy direct from the insurer, though mechanical breakdown insurance is more commonly sold by car dealers, which earn sales commissions from insurers.

It was one of three kinds of insurance which were covered in a critical report from the commission late last year. That report followed a report by Australian regulators which reported poor value from insurance policies sold by car dealers.

In the 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​ policy holders, 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​.

The commission calculated that the chance of a mechanical breakdown insurance policyholder making a claim, and having that claim accepted, was 15​%.

It found claims were made on 22​% of mechanical breakdown policies, and 70​% of claims were “accepted” though that did not mean the entire cost of repairs was covered, because excesses and exclusions would have reduced claims payments.

Autolife is a subsidiary of Beneficial Insurance.

Pet insurance was Beneficial Insurance’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.

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