In the immediate aftermath of the superstorm Sandy, prepaid cards were summoned to help even though the products have spotty track record in times of extreme need.
Among the mandates set forth in New Jersey Gov. Chris Christie’s executive order of Nov. 2, intending to steer insurance companies to maximize their aid to victims of the storm, was permission to immediately allow insurance claims to be paid by loading prepaid debit cards or electronic transfer.
Prepaid cards have not always been a natural fit for natural disasters. After Hurricane Katrina, the Federal Emergency Management Agency began offering relief funds through JPMorgan Chase-issued prepaid cards. It stopped this program just a few days after it started, due in part to the risk concerns raised with offering plastic cards to individuals that may not have proper identification or even a permanent address.
Even a Fed report that was favorable of the post-Katrina use of prepaid cards acknowledged the inherent fraud issues of using the cards in this manner.
Those issues may not be as prevalent for insurance policyholders, who have already been vetted by their providers, but the New Jersey plan still places some restrictions on card recipients and issuers alike.
Claimants would have to opt-in to the prepaid card option; no fees would diminish the amount of the claim payment; payment can be converted to cash; and the claimant is made aware of any terms and conditions.
Prepaid cards are not covered by the Dodd-Frank oversight that limits transaction fees, but the governor’s mention of fees is not the only parameter that may safeguard claimants, says CEB Tower Group senior research director Brian Riley.
“Keeping in mind that Hurricane Sandy did an estimated $40 billion in damage in that state alone, there is sufficient volume for card issuers to refine their business model for this sector,” he says. “Issuers will need to revise fee revenue expectations, but the volume in this instance alone, and the potential to serve other domestic and international disasters, poses an unfarmed opportunity for card industry players.”
Disbursement of insurance benefits to prepaid card accounts makes sense for the same reasons it make sense in areas like Social Security and unemployment benefit payments, as well as government-administered child support payments: cost savings to the government entities (printing, mailing, replacement of lost checks), and speedier, safer, and more convenient and transparent disbursement to recipients.
Prepaid cards’ use in the wake of disasters such as Sandy are first and foremost a practical comfort in an extreme time of need, says MasterCard global prepaid group executive Ron Hynes.
“In the case of a disaster where people are forced to leave their homes, bank branches are closed, retailers are closed and ATMs don’t work, wouldn’t it be great if we all had a prepaid card from our insurance company and we were able to evacuate our family and get a notice from our insurance company that said: ‘Hey, we know you evacuated, we just loaded up your account, take care, get a place to sleep tonight,’” says Hynes.
MasterCard has worked with Comerica Inc., Xerox Corp., and the U.S. Treasury to develop the MasterCard-branded Direct Express Card, a debit card that can be loaded with Social Security benefits. Three million cardholders get their benefits this way, says Hynes, and a recent Treasury survey found that 95% of them are satisfied.
According to MasterCard, other governments using prepaid cards for social benefits include South Africa’s, Italy’s, Romania’s, Toronto’s, and the United Arab Emirates’.