LOA shares FAIS Ombud’s credit insurance concerns

The Life Offices’ Association (LOA) remains concerned about undesirable practices in the consumer credit insurance industry and agrees with the FAIS Ombudsman that exploitation of vulnerable consumers must be stamped out.

Gerhard Joubert, CEO of the LOA, points out that the financial services providers cited as respondents in the Gumede versus the JD Group case are not members of the LOA and therefore not bound by the LOA Code of Conduct. Furthermore, many of the issues raised relate to short-term insurance.

“However, the ruling has sent out a strong message to all players active in the consumer credit insurance industry that any undesirable practices will not be tolerated.”

He also points out that the National Credit Act, which came into effect after the events that led to the Gumede ruling, provides significant regulatory intervention regarding the granting of credit. The Act not only obliges lenders to ensure that borrowers can afford to take on the debt requested, but also requires lenders to provide the person taking on debt with enough information to enable them to make an informed decision.

Joubert says the LOA started addressing concerns in this market by appointing a panel of enquiry into consumer credit insurance practices in the second half of last year. This followed on reports alleging contraventions by member companies active in the consumer credit insurance market of the commission and remuneration regulations of the Long-term Insurance Act and the LOA Code of Conduct. The LOA was joined by SAIA in this regard.

The two associations jointly appointed a high powered panel of long- and short-term insurance experts and a consumer representative, chaired by the former Ombudsman for Long-term Insurance, Judge Peet Nienaber. Public hearings were held by the panel towards the end of last year.

Joubert says the panel has a very wide mandate, and is looking into issues relating to market misconduct and the value proposition to consumers, which are also issues that were raised in the Gumede ruling. The LOA has thus referred the Gumede ruling to the panel and they have been asked to consider the matters highlighted in the ruling.

The panel of enquiry is being guided by the following terms of reference:

• Improper and inappropriate marketing and distribution practices.
• The payment of excessive commissions or other improper fees or incentives.
• The fairness of standard terms and conditions.
• The adequacy of the overall value provided to consumers.
• Pre- and post-sale disclosures and information provided to consumers.
• Promoting greater consumer understanding of credit life products, their benefits and the consumer’s rights.

Joubert says the panel is currently preparing a report on its findings with the aim of developing proposals on how best to address current short-comings to ensure greater consumer protection in this market. The aim is to make the findings public towards the end of the first quarter this year.

Commenting on a call by the Office of the FAIS Ombudsman that more consumer education is required, Joubert says the life industry, through the LOA, has committed R10-million this year for various financial literacy drives which will also focus on credit life insurance. This is supplemented by extensive consumer education programmes developed by individual life companies.