We received a number of reader responses to yesterday's newsletter on the LOA inquiry into the credit life insurance industry. Not least of these was a response from the LOA to clarify the status of the investigation. They point out that "although the panel has concluded the hearings, its investigations are still continuing and no conclusions have been finalised as yet."
It is also important to remember that the inquiry is focussed on "undesirable business practices affecting the consumer" and not on the legality of these business practices. As such the LOA / SAIA media release referred to previously does not rule out the possibility that 'illegal' practices might have occurred.
Detailed answers and recommendations to follow
The next step is for all the evidence gathered during the initial phase of the investigation to be carefully considered. Once this is completed, the panel will issue a report to address a number of issues around credit life insurance.
First and foremost, close attention will be paid to the distribution channel, including sales and marketing practices and commissions. Were the marketing and distribution practices appropriate? As one of our readers notes, "The people selling these products are [often] not financial advisors and are thus not able to inform their clients of the health exclusions, penalties, etc on the product. I have seen [credit life] contracts where the commissions where upwards of 35% of the total premium."
The investigation will also seek answers to whether there were any contraventions of the commission regulations through the payment of excessive commissions or other improper fees or incentives and whether there were any conflicts of interest for intermediaries selling credit insurance. Most importantly, the panel will consider whether consumers know what they are paying for and that they are covered for death and disability. The pre- and post-sale disclosure to consumers will also be considered.
Another FAnews Online reader provides an example of why the investigation was prompted in the first place: "I am shocked at the premiums consumers are paying toward credit life insurance. In most cases they are not given a choice when it comes to credit life they are just given documents to sign with no explanation as to what they are signing. Most consumers simply sign without asking. To give a recent example: A client applying for debt counselling was paying R835.00 per month towards credit life through three different credit providers the total outstanding balance at all three was approximately R54, 000. The clients total outstanding debt across all accounts was just under R100, 000. A quotation for life cover (not credit life) came to R214 per month. If this is not an example of how credit providers are ripping consumers off with credit life, then I don't know what else to call it"
Examining the principle of fairness...
The investigation panel will also examine the fairness of policy terms and conditions and whether exclusion clauses and waiting periods are defined too widely.
A reader supplies this comparison of different policy payouts after a client's death: "An Old Mutual policy paid out with 14 days of the death, one day after they received the Letter of Executorship). Absa Credit Life assurance paid out two months later (for a credit facility insured with them) and Sanlam Home Loans also paid two months after the death. Standard Bank had not included credit life assurance with their facility while NedBank repudiated the claim on the grounds of their Credit Life Assurance wording. I have had other cases over the years where large sums of outstanding debt were not covered by Credit Life Assurance upon death and disability claims due to the small print wording of the policies."
Answering the value proposition
Finally the report will comment on whether or not consumer credit insurance (as a whole) presents the consumer with good value. We believe this is probably the crux of the matter. Does credit life insurance represent good value given the other risk insurance products available to the consumer? And more importantly, is the product sold by experienced practitioners with enough information to satisfy requirements as set out in the FAIS Act?
We leave it to another of our readers to sum up the situation. "Credit life policies have a place but only once a proper needs analysis has been completed. All the circumstances and available policies should be taken into consideration. Experience proves that a focus on clients and their needs will produce more sustainable business than product pushing can ever do.
Editor's thoughts:
It seems almost every broker can share a horror story when it comes to credit life insurance. This is clearly illustrated in the example included in today's newsletter, where a consumer was making monthly payments of R835 for credit life cover on approximately R54, 000 of debt. What recommendations would you make if you were on the discussion panel investigating activities in the credit life industry? Send your comments to
gareth@fanews.co.za