The jury is out on credit life insurance

In July 2007 FAnews Online reported on media concerns over various practices in the sale of credit life policies.  At the time, Life Offices' Association (LOA) chief executive Gerhard Joubert said: "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."

Soon after this statement, media activism inspired the LOA to launch an inquiry into the credit life practices employed by the industry. The inquiry was chaired by Judge Peet Nienaber and began hearing evidence in September 2007. According to a joint media release by the LOA and the South African Insurance Association (SAIA) the panel heard 20 hours of evidence at four public hearings. Written submissions had also been requested.

Insurance companies emerge squeaky clean

Anna Rosenberg, deputy CEO of the LOA says that "The panel heard evidence from life insurers, short-term insurers, credit providers, a member of the public, both the LOA and the South African Insurance Association (SAIA), and the ombudsman for long and short-term insurance." Rosenberg told Business Day that: "The idea was to identify problem areas in the credit insurance market and to assist in eradicating undesirable practices with a view towards better consumer protection." Now that the inquiry has been completed, both the short-term and long-term insurance bodies are confident that initial results prove that activities in the credit life sector are within the law.

So while these products might not always have afforded the consumer the best possible deal at least no laws were broken. "Members of the panel as well as the observers were impressed with the level of co-operation they received from the LOA and SAIA member offices and commented on the quality of presentations made to the panel," said Rosenberg.

When we last discussed the matter we said that credit life insurance policies were confusing, expensive and seldom claimed against. We also felt that the life insurance companies sold these products with scant regard for the consumer protections introduced through various regulatory bodies. Even if the inquiry finds that there were no regulatory contraventions we still think the above concerns need to be addressed. While we wait with interest for the inquiry report to be released, early indications are that the LOA inquiry may side-step some of these allegations.

Confusing, expensive and difficult to make a successful claim
 
Refilwe Moletsane, deputy COE at the South African Insurance Association (SAIA) said "The report will be made public and will also be submitted to national treasury, the FSB, the parliamentary portfolio committee on finance and the National Credit Regulator as well as to the boards of the LOA and the SAIA."

In the interim, the LOA and SAIA feel that consumers should ignore any problems these products might have, and focus instead on the benefits they will receive from them. Moletsane believes "The hearings not only highlighted problem areas in the consumer credit insurance space, but also reminded [the industry] of the benefits to the consumer."

She went on to explain that "Whilst it is acknowledged that there are problems, credit insurance also protects consumers from the potential devastating effects that eventualities such as death, disability or theft may have on borrowers not protected by credit insurance."

Acknowledging some shortcomings

Does this mean the industry has nothing to do going forward? At the very least they have acknowledged that there are some problems to iron out in coming months. Moletsane says an investigation team is still considering the evidence and written submissions. "At the end of its deliberations, the team will prepare a report on its findings and develop proposals on how best to address current shortcomings to ensure greater consumer protection in this market," she said.

It will be interesting to see if any clear recommendations emerge from the report and what these recommendations are. Will the industry bodies recommend changes to the product structure to make it more consumer friendly or will they introduce a raft of new measures to bring product distributors in line?

Editor's thoughts:
Initial findings of the inquiry into the credit life industry suggest that life insurance companies have not contravened any laws. This is good news; but the inquiry was about more than simply establishing the legality of activities. It intended to address specific activities in the sales environment including transparency of cost and the relevance of the product to individual consumers. Fortunately the LOA and SAIA acknowledge there are problems that need to be addressed. What problems do you think the report will ultimately focus on? Send your comments to gareth@fanews.co.za