A closer look at the credit life investigation

The Ombudsman for Long-Term Insurance released their 2007 Annual Report at a function in Johannesburg recently. We’ve discussed the facts and figures in a previous article – and pause today to reflect on some of the insurance industry trends the Ombudsman

Long-Term Ombudsman has a number of concerns

In its submission to the investigation Panel, the Ombudsman for Long-Term Insurance raised no less than 15 concerns. On closer inspection many of the points raised apply to every instance of insurance – in both the long and short-term industries. This is underlined by concerns which include lack of proper disclosure, an absence of standardisation, ambiguously worded clauses and problematic time-barring provisions. A number of other shortcomings in communication with the consumer were highlighted.

Some concerns relate directly to the distribution channels employed. The Ombudsman bemoaned the misinformation conveyed to applicants for such insurance whether “through direct marketing or by insufficiently trained sales personnel at motor dealerships, retailers or credit providing institutions.” The consumer cannot discern between the various parties to the deal, which include the seller, credit provider, administrator and insurer. This structure added layers of insulation for the insurer, as administrators could refuse claims at an early stage. As a consequence consumers were often not informed of their right to escalate complaints to the Ombudsman.

And finally there were concerns with the insurers’ behaviour. The Ombudsman was unhappy with “premature repossession proceedings while a complaint was still under consideration by the Office. He couldn’t understand why there were no mechanisms to notify the insured’s family of the existence of the credit life policy in the event of death or disability either. Many policies were simply not claimed against for this reason.

Panel’s report is due out soon

The marketing tactics employed in selling credit life policies often mean the consumer is not properly informed of exclusion clauses in these policies. The Ombudsman noted that his office receives numerous complaints where the “pre-existing conditions clause’ has not been properly explained. A common dispute stems from the insured’s assumption that death as a result of a medicated condition (such as hypertension) will be covered. This is clearly not the case. The Ombudsman notes that “problems in marketing credit life policies are not restricted to South Africa.” At a recent gathering of Insurance Ombudsman in London a number of attendees mentioned similar problems in their jurisdictions.

Hopefully South Africa will find a lasting solution to the problems around credit life policies. The Panel was expected to release its report at the end of March 2008. They’re a couple of weeks late; but we expect the release any day now. And we’ll update you with the results as soon as they come to hand.

Editor’s thoughts:
The financial services industry is awash with discussion papers and special investigations. Sometimes it seems as if real progress is hindered by the volumes of painstakingly documents proposal and counter-proposal. Will the joint LOA / SAIA report make aggressive recommendations to clean up the credit life industry? Send your comments to gareth@fanews.co.za, or respond below.