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Card insurance: Too simple, too little

By Tinesh Bhasin in Mumbai
Last updated on: May 04, 2009 12:56 IST
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With a rising penetration of cards, both credit and debit, the number of fraud cases are also going up by the day. As per recent statistics from the Reserve Bank of India (made public by the Minister of State for Home Shakeel Ahmad in the Lok Sabha), banks reported 12,959 cases of credit card frauds between April and December last year.

The total money involved in these frauds amounted to Rs 36.54 crore (Rs 365.4 million). That is, an average of Rs 28,197 per card. When debit card frauds are also taken into account, the numbers could be quite high.

Imagine being caught in a situation wherein your cards are lost, or stolen, and then misused. In such a circumstance, the only thing that you can do is block the card. However, in case of any high expenditure, the bank is likely to charge it to you.

The reason: Losing a card is considered as the customer's fault. So the cardholder needs to compensate the company. Of course, there is the banking ombudsman in case of any discrepancy, but that would mean a long drawn battle.

A simpler solution would be to have a cover that takes care of any liability arising out of a card loss. The answer is to get a credit protection plan, or card protection plan.

At present, two companies offer this product, which protects all your cards against any misuse due to card loss, theft and related frauds.

The prominent player in this credit protection plan segment is CPP Assistance Services, whose Chief Executive Officer Gagan Maini says that insurance is just a part of the entire gamut of services being offered by the company.

That is, the company not only offers protection for your credit and debit cards globally, but also helps the customer with the documentation required in case there is a loss of passport, driving license and other membership cards.

They preserve all relevant details in their database. In case of any loss, this data is used to provide the customer whatever he needs while applying for another passport and memberships.

Tata AIG General Insurance is the other company that offers such a protection, but only for Standard Chartered clients. Tata AIG had been selling this product only through their business partners as a group policy. But they have now started selling this to retail customers too. Currently, four banks offer CPP's service. These include Citibank, HSBC, Standard Chartered and Kotak Mahindra Bank.

Once a person has signed up for this service, there's no cap on the number of cards that can be registered. In case the cards are lost or stolen, all the cards can be blocked through one phone call.

Let's look at these products in detail.

CPP Assistant Services offer two plans -- Classic and Premium. Fraud protection amount, prior to the lost-card notification, is Rs 50,000 under the Classic plan and Rs 100,000 under the Premium plan. But maximum coverage on each card is Rs 20,000 in the Classic plan and Rs 40,000 in the Premium plan.

The fraud protection increases to Rs 15 lakh (Rs 1.5 million) and Rs 20 lakh (Rs 2 million) in Classic and Premium plans respectively, once the customer notifies the company. The single and joint membership fee for the Classic plan is Rs 995 and Rs 1,495, respectively. For the Premium plan, single membership fee is 1,295 and Rs 1,945 for joint membership.

CPP covers the liability if the customer informs the company within seven days of the first fraudulent use. This is where the CPP scores over Tata AIG. The latter only covers if the company is called within 12 hours of the fraudulent usage.

The maximum sum insured by Tata AIG is Rs 1 lakh (Rs 100,000). But only 50 per cent of this can be availed per occurrence. The premium depends on the benefit suite chosen by the customer and starts from Rs 1,500 a year.

While Tata AIG offers a wide range of benefits, including lost wallet, ATM assault and robbery, and home-away protection, CPP Assistance Services offers hotel assistance, replacement of travel ticket, emergency cash and documentation services.

But there is a catch here too. The cards either need to be stolen or lost. If a fraud takes place while the card is still in the person's possession, then the cardholder is liable for the loss. Despite these benefits, certified financial planners think that the cover is just not enough.

"No matter what services are offered, both the plans are not attractive. They do not cover fraud, if the customer still has the possession of the card. That is a big drawback," said a financial planner.

Today, there are a lot of other technological ways by which a fraud can be done. 'Skimming' and account takeover are some of the other methods used by professional criminals whereby, even while the card is in the possession of the cardholder, they can be used to purchase goods.

Recounting his own personal experience, Gaurav Mashruwala, a financial planner, echoed similar views. "Once, after coming back from abroad, I realised that though I had the card with me, it had been misused.

"Now I block my cards every time I come back from my visit to a foreign country. Technology has advanced so much that a person does not need to have a card to misuse it," said Mashruwala.

Insurance companies will have to take these crimes into account while offering cover.

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Tinesh Bhasin in Mumbai
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