Credit card holders conned on insurance cover

By Venkatachari Jagannathan | 14 Sep 2001

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Chennai: Citibank has come under the scrutiny of the Insurance Regulatory and Development Authority (IRDA) for foisting accident insurance cover on its credit card-holders.

The IRDA has summoned Tata AIG Life Insurance Company Ltd and Royal Sundaram Alliance Insurance Company Ltd to explain why and how their personal insurance schemes were tied up with Citibank that is alleged to be charging the credit card-holders the premium for insurance cover without their consent.

Citibank has been automatically debiting the card-holders' accounts against the insurance premium.

Citibank offers two kinds of insurance covers - credit shield and personal accident insurance for its Classic and Gold credit card-holders. This is in addition to the personal accident insurance cover offered by the public sector New India Assurance Company Ltd, Mumbai, for all the Citibank credit card-holders.

Under the credit shield, legal heirs of card-holders need not pay the card dues in the event of the latter's death or permanent disability up to Rs 1 lakh (Classic card-holder) and Rs 2.5 lakh (Gold card-holder). The premium for Classic card-holder is 0.86 per cent of the month-end outstanding balance and 0.98 per cent for Gold card-holder. Tata AIG provides this insurance cover.

In addition, a Classic credit card-holder is offered a personal accident insurance cover (death and permanent total disability) of Rs 5 lakh and Rs 25 lakh for Gold card-holder for a premium of Rs 14.70 per month and Rs 73.50 per month respectively. Premium apart, a monthly administrative charge of Rs 15 is also levied on the card-holder.

The bank makes a song and dance about the low premium rate due to volume discounts offered by the insurer.

A deeper look at the personal accident insurance cover and the cost for the credit card-holder and comparing the same with the normal rates offered by government-owned insurers would reveal how the Citibank is milking its credit card-holders.

Normally, government-owned insurers charge 45 paise per Rs 1,000 of the sum insured to cover the risks of death and permanent total disablement due to an accident. So, for Rs 5 lakh value the premium works out to Rs 225 per annum. This rate is for individual policies and the government insurers do offer volume discount.

But under the Citibank-Royal Sundaram personal accident insurance scheme for a Classic card-holder, the insurance cost works out to Rs 266 per annum (Rs 176 as premium and Rs 90 as administrative charges - after apportioning the Rs 15 per month administrative charge equally between credit shield and personal accident insurance).

What has irked the card-holders is that the bank has been debiting their account automatically the premium and administrative charges. Complains an affected card-holder in a chain e-mail: “Irrespective of the merits of the insurance cover I feel that the scheme is unethical as I have not given a debit authority to Citibank. I wonder if Citibank would be happy if I send them some 30 mailers in a year and in one of them in some innocent corner, say that unless Citibank gets back to me by the end of this month, all Citibank properties worldwide are mine.“

Sundaram Finance, one of the promoters of Royal Sundaram, too offers personal accident insurance to its fixed depositors. This policy is also from Royal Sundaram but with an 'opt-in' facility and not like Citibank's 'opt-out' scheme.

“This is a very typical American style con job like those advertisements which come in many American newspapers and magazines called the Putman style,“ says another e-mailer.

Viewed at the backdrop of Citibank signing an MoU with Royal Sundaram to act as its insurance agent, this practice of automatic enrollment or 'automatic opt-in' raises the issue of ethics in insurance canvassing.

According to a report, Citibank is targeting 5.5 lakh card-holders under this scheme. It expects around 25 per cent to opt out, leaving around 4.12 lakh card-holders to be enrolled under the insurance covers.

Even at a conservative estimate of average collections per card-holder being Rs 300 per annum (both schemes put together), Citibank would be mopping up around Rs 12.37 crore per annum. On this, an insurance commission of 15 per cent works out to Rs 1.8 crore.

One Sankar, who started the chain mail, says: “The scheme is called Suraksha twin benefit. I wonder who are the two guys benefiting from it?"

Is Citibank being compensated by Royal Sundaram for roping in more policy holders? If yes, how? Several attempts to contact Royal Sundaram deputy managing director Anthony Jacob to get his views came as a cropper.

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