Credit card insurers are unconcerned about the new PIN and chip technology. Francis Higney explains why
The fanfare that has greeted the introduction of the latest initiative to combat credit card fraud will not automatically sound the death knell for credit card insurers.A joint venture between the UK retail and banking industries developed a programme called chip and PIN in an effort to combat the problem of credit and debit card fraud in the UK. It went live in the UK earlier this month.Chip ensures that the card is genuine, while the PIN element checks that the person presenting the card is the true owner. The chip therefore protects against counterfeit fraud and the PIN against lost and stolen cards and those intercepted in the post.It is expected that by 2005 most credit and debit card transactions will be verified by the consumer keying in a personal identification number (PIN) at the point of sale rather than by signing a paper receipt.All of which, on the face of it, could be expected to end in a 'no sale' for purveyors of credit card insurance.The US Federal Trade Commission has come down heavily over the past couple of years on 'boiler room' operations, which create fake companies to extract credit card information from unwitting cardholders. Policyholders, however, have full protection from their card provider against such theft and liability for unauthorised charges is limited to $50.A similar arrangement exists in Britain with consumers having full protection under the banking code."In effect, you don't need the insurance policy," explains Association of Payment and Clearing Services (APACS) Sandra Quinn. "And although, theoretically, you could be liable for a £50 excess if you don't report the loss of your card quickly, in effect this is only used as a deterrent."So why does anyone bother buying this cover in the first place? "The only time a policyholder should consider taking out this kind of insurance is if they have a number of credit cards," Quinn adds.What the cover offers is peace of mind and ease of the tiresome cancellation process should the policyholder lose, or have stolen, a number of credit cards at the same time.That's one reason the major companies offering card protection are unperturbed by the advent of chip and PIN - the insurance is just one element of the product. Two of the biggest providers in the country offering this insurance are Sentinel and CPP, both of which provide the insurance offered by major banks. Both offer insurance policies that protect the policyholder in cases of fraud, but also include other benefits such as emergency cash, replacement tickets, a lost key service and luggage retrieval. One call to CPP or Sentinel and they will cancel all the cards and arrange for new ones to be issued. The annual cost of obtaining credit card protection cover is around £15 to £20. A CPP spokesman says that although card protection is a significant part of CPP's business, it is not everything."There are two reasons why people buy this insurance, one is the insurance aspect, the other the assistance benefit which most of our customers cite as the reason for purchase."Mat Simester, development director at Sentinel also feels chip and PIN will have no major impact on the credit insurance business. "Credit card sales over the internet, by mail order or telephone are not covered," he says.But he admits the public may need further convincing of the need to purchase this insurance.
The cost of card fraudOver £424m of fraud was committed on UK cards in 2002. Plastic card fraud losses on UK-issued cards increased 53% in the 24 months to August 2002 with annual losses of nearly £430m.However, latest APACS figures show a decrease of around 5% last year from £424.6m in 2002 to £402.4m in 2003. The fall is due to a reduction in the amount of fraud committed abroad on UK cards. For UK-based transactions there has been a very slight increase.Counterfeit card fraud saw the largest reduction, down by 28% (£106.7m in 2003, compared with £148.5m in 2002). Most reduction occurred in mainland Europe where counterfeit fraud was down by £26m on the previous year. Fraud on lost and stolen cards also dropped, by 2% (£106.1m compared to £108.3m in 2002).