Significant consumer protection measures on the cards for credit insurance

21 August 2008 Life Offices? Association (LOA)

The life insurance industry has committed itself to ensuring that consumers who have purchased consumer credit insurance when taking on debt are made aware of the fact that they have life and/or disability cover and understand exactly what they are covered for.

The board of the Life Offices’ Association (LOA) agreed this week that the LOA should issue a number of best practice recommendations aimed at encouraging member life companies to address the main problem areas in the consumer credit insurance arena.

Gerhard Joubert (pictured), CEO of the LOA, says the lack of awareness around consumer credit insurance was identified as a key area of concern in the Consumer Credit Insurance Enquiry Report, released in April this year.

The report was compiled by an independent panel of enquiry jointly appointed by the LOA and the South African Insurance Association (SAIA) last year to identify problem areas in the consumer credit insurance market.

“Consumers often do not know that they bought life and/or disability cover when they took on credit, and also often do not understand the nature of the cover. Promoting awareness of cover is therefore critical and the introduction of regular communication to policyholders is urgent,” says Joubert.

The LOA will recommend to member companies that regular communication, which policyholders of consumer credit insurance policies should receive at least once a year, includes:

  • An overview of the benefits of the policy purchased.
  • Information on how the claims process works and the relevant contact details of the life insurer. The policyholder should also be encouraged to share this information with family members.
  • An explanation of events that could qualify the policyholder or the family for a claim. These could include various types of disability or retrenchment.

Joubert says the Board also approved a number of other consumer protection measures to be implemented by member life companies as soon as possible. These standards apply specifically to credit insurance cover of up to R200 000 and should help reduce much of the confusion that often results at the claims stage. These standards will result in:

  • Reduced and simplified medical exclusion clauses in the policy wording of consumer credit insurance.
  • Limited pre-existing medical conditions that were treated during the 12 months before the policy was taken out being excluded in the 12 months following the inception of the policy.
  • Limited pre-defined medical conditions to which the 12 month exclusion period may be applied, namely heart disease, cancer, strokes, kidney disease, depression, epilepsy or fits, back ailments, lung ailments, disability, and diabetes.
  • An extended claims notification period from 90 days to a minimum of 180 days. The 90 day claim notification period has been problematic because often families of a deceased person discover the existence of credit life insurance cover after its expiry.

Joubert says the LOA and the SAIA also agreed to form a joint forum to find solutions to problem areas that affect both short- and long-term insurance companies active in the consumer credit insurance space. The associations will also look at launching joint consumer education and awareness programmes.

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