Product Transparency

A number of media reports have done the rounds recently detailing a variety of unethical practices in the sale and distribution of credit life insurance policies. We believe that this extensive press coverage prompted Life Offices' Association CEO, Gerhard Joubert to issue a lengthy release in which aspects relating to this product were discussed.

FAnews Online believes this press release is tantamount to an LOA admission of shortcomings in guiding the actions of its members. Despite credit life insurance products being sold for more than 25 years, and the LOA being aware of specific problems in the industry since at least 2003, Joubert states "The LOA is currently investigating problems in the credit life industry and we are looking at ways of making these products more consumer-friendly and adding consumer protection measures."

By their own admission, LOA members have been flogging a confusing and expensive product using untrained sales agents for a number of years, often without the consumer's knowledge, and are only now considering making changes to ensure consumer protection. It is difficult to imagine a situation which flies more in the face of the consumer protection measures introduced by various regulatory bodies in the last few years.

Is this acceptable practice

In the LOA statement, Joubert goes on to say that the consumer will generally not receive financial advice when taking out credit life insurance since those selling the cover are usually not qualified financial advisers. "Therefore, if you are in need of financial advice, or if you are not sure whether you need to take out credit life cover, it is important that you first check with your financial adviser," says Joubert.

Does this absolve the sellers of credit life insurance policies from giving fit and proper advice in terms of the FAIS Act? If this is the LOA's contention, then surely the LOA wishes to absolve its member's from providing fit and proper advice through their product distribution channel

Joubert goes on to say that "consumers often don't realise that they are not obliged to take credit life cover if their existing life and disability policies provide sufficient cover." If this is the case then the product provider and product seller are failing the consumer by not supplying full and proper information at the point of sale. The LOA needs to immediately recommend to its members that the negligent practices in selling these products are remedied.

Instead, the LOA is putting the ball back in the consumer's court, suggesting a range of checks that the consumer can perform to avoid suffering at the hands of 'rogue' insurance salesman We thought it would be interesting to take a look at some of these tips, and determine whether the average consumer will be able to make the call We summarise them in three categories:

Avoiding the pitfalls?

Category 1 is common sense advice, the type of thing a consumer should do as a matter of course when entering any agreement. Points under this heading included reading and understanding the contract before signing, never signing a blank or incomplete form, always supplying correct and complete information and determining how much the premium is.

Category 2 includes a number of suggestions which the average consumer would probably not independently carry out. The suggestion that consumers obtain a copy of the policy and determines which insurance company is being dealt with is a real gem. The consumer assumes he is dealing with the company who sells him the credit life insurance policy and is unlikely to dig further than that. Additional suggestions that the consumer remembers the 30 day cooling off period and realises that he doesn't have to take out credit life insurance are key points which should be shared by a trained sales agent!

Category 3 also includes some real gems... Joubert suggests the consumer should be aware of their rights when entering a life insurance contract, and know they have the freedom to decide whether the debt is covered by a new policy or an existing policy is used. The consumer is also free to choose the financial adviser and the life insurance company he deals with. We believe the insurance salesman should advise the consumer of these rights before 'secretly' selling a credit life policy to an unsuspecting client. Suggestions in this category are of little help to a consumer who is often unaware that he has purchased the product in the first place.

One of our readers recently submitted that: "The problem with credit life insurance is that it is too expensive (not because of commission) and is often sold to the same client two or three times over. The average guy does not even know that he has purchased it! And only one claim will be paid, if at all." We believe the bare minimum requirement from the insurance companies providing these products is for them to take steps to improve product transparency and the level of advice at point of sale.

Editor's thoughts:
Credit life insurance policies are confusing, expensive and seldom claimed against. It is little wonder the large life insurance companies have been hard-selling these products with scant regard for the consumer protections introduced through various regulatory bodies. Should the LOA be side-stepping the serious allegations of selling abuse, or should they rather make firm recommendations to their members to clean up their acts? Send your comments to gareth@fanews.co.za