Credit act is mixed bag of tricks
Implementation of the National Credit Act might increase insurance costs.
If so the reason would be the greater administrative burden on insurers, says Andre Dreyer, business development actuary at RGA Reinsurance Company of South Africa.
"The major affect of the act on credit life insurance is likely to be the changes to the charging structure of premiums," says Dreyer
He says that in terms of the act, single premium credit life insurance can no longer be charged.
"The act will require that a recurring premium structure be adopted, which means we might see an increase in costs because of the greater administrative burden on insurers."
Section 106 of the act states that credit providers may require consumers to maintain credit life insurance during the life of a credit agreement.
But credit providers who in the past only proposed their own policies will now be required to inform consumers of other available options.
"Though this might create a more competitive market from a price standpoint, there are other issues that need to be addressed," Dreyer says.
"Should a consumer take a product with another provider, the credit agreement and related insurance could be mismatched, meaning all parties are left open to possible problems."
This separation means that if consumers lapse on their insurance, the bank or credit provider might not know about the lapse.
"At that point the credit provider no longer has security in the loan and the client's dependents might be left with the burden of the debt," says Dreyer.
While banks and credit providers have never been allowed to force insurance sales on clients, there has always been a requirement to ensure security on the part of the lender.
By creating a single point of sale, Dreyer says credit providers can offer clients added value through convenience, and ensure that the insurance provided is sufficiently comprehensive.
Dreyer says the national credit regulator will now be required to monitor credit life insurance trends in terms of sales patterns, costs and the performance of credit life insurance in meeting the obligations of consumers.
Though at this stage the regulator will take on more of a monitoring role and the industry will generally be left to self-regulate, it will, however, ensure that controls are in place to monitor this self-regulation.