Urgent investigation puts credit insurance under microscope
The Life Offices' Association will launch an urgent enquiry into the consumer credit insurance market. Former long-term insurance ombudsman Judge Peet Nienaber is heading the investigation.
The enquiry will cover all consumer credit insurance marketing and distribution practices, including incentive strategies that might drive behaviour that impacts negatively on consumer protection, says the association's chief executive, Gerhard Joubert.
It will seek to identify any gaps in the regulatory environment as well as touch on product issues such as the product value proposition, the use of exclusions, disclosure and information provided before and after the sale.
Credit insurance is used by consumers to protect assets by ensuring debt is covered in the event of death, disability, involuntary unemployment or property damage or loss.
Joubert says the association is concerned by media reports alleging contraventions by member companies active in the consumer credit insurance market.
He says the life industry views these allegations seriously and resulted in the investigations. It will also touch on non-compliance with the association's code of conduct.
Joubert says the enquiry will run concurrently with a Financial Services Board's investigation into compliance with existing regulatory requirements.
He says the consumer credit insurance market services largely the more vulnerable consumer where fair and transparent practices are of most importance.
The association is also embarking on several other initiatives to protect consumers when it comes to credit life insurance.
These include the launch of an educational campaign informing consumers what credit life cover is and what their rights are.
There will also be a continued formulation of minimum standards for products such as credit life cover, mortgage protection, life cover and disability cover to ensure these offer fair charges, easy access and decent terms.
The maximum price to the consumer will be capped.
Meanwhile, the FSB says it will also launch an investigation into various practices around the rental car insurance business.
A story by an online publication, Insurance Times & Investments (ITInews), shows all car rental companies include in their daily rates a charge for insurance, referred to as collision damage waiver (CDW) and theft waiver (TW), intended to protect the client if a rental car is involved in an accident or is stolen.
CDW, according to the ITInews, is sometimes called super damage waiver (SDW), while theft waiver is also variously called theft protection or super theft waiver (STW).
By paying for the waivers, the publication says clients can limit their exposure to a so-called excess, say of R1800 or no more than R3000.
Clients are rarely aware of the additional waiver fee as they are usually presented with an all-in rate, say, of R265 a day, plus a contract fee of R25.
Fuel costs are additional to this.
An analysis of the estimated total of R290, aside from the fuel charge, reveals the insurance bill is R153 a day or about 53percent of basic costs.
Financial Services Board spokesman, Russel Michaels, believes there is a clear case for investigating various practices that have developed in the industry in recent years.
He said the FSB has still to draw up a detailed brief for its work.
But, he told ITInews, the practice of charging daily rates for collision damage and theft waivers will be a central part of their investigation.