Instant insurance

Today's consumer is confronted by a multitude of easy-access insurance products. The direct insurers dominate the personal lines and commercial insurance landscape, but have been joined by life assurers, medical aid schemes and travel health insurers in recent years. These distribution models raise some serious concerns. The proliferation of direct insurance options means that consumers can conclude complicated financial contracts online, by telephone or at a counter in a retail outlet.

Understanding the cover

While it certainly addresses the consumer's demand for convenience, this obsession with cost effective distribution models raises some serious concerns. The first is that the consumer is not receiving the level of financial advice necessary in the conclusion of a financial contract. Although insurers have started producing consumerfriendly policy wordings, there is still no guarantee that the policyholder understands the cover purchased.

Regulatory compliance

The second concern is that it becomes increasingly difficult for regulators to clamp down on those who are failing the industry in terms of the FAIS Act. This shortcoming is clearly demonstrated by the recent FAIS Ombud determination in the matter between Gumede (a domestic worker earning R300 a week) and a furniture retailer.

The case reveals just how damaging it can be when a credit retailer sells insurance. Although the furniture retailer complied with most aspects of the FAIS Act, the sales person who assisted Gumede quickly 'sold' a credit life policy, goods insurance and extended guarantee without offering a modicum of financial advice. The tactics employed were little more than rubberstamping additional revenue for the respondent.

Far reaching consequences

It is time for the industry to investigate whether the distribution channels employed by direct insurers and bancassurers can hold water against the various financial services regulations and Acts. Although the consumer has the right to access and the right to choose their cover, there are not many consumers who are aware of the pitfalls (or clauses) which apply specifically to commercial insurance policies, medical aid schemes or international travel insurance policies.

Quick and easy insurance might benefit the consumer in the short-term; but it clearly bypasses the conditions of 'fit and proper' financial advice and marginalises insurance brokers.

Brokers could play a role

'Instant' insurance is here to stay, however, the insurers who offer such cover should be aware of the pitfalls and might consider the role brokers could play in offering the correct cover to consumers. Their knowledge ensures that the consumer gets the appropriate mix of cover and affordability. The role of the advisor in ensuring that both insurer and insured enter a contract for the best product should not be ignored.