On part-time insurance salesman and ‘automatic’ policies
In April 2008 an independent panel appointed by the South African Insurance Association (SAIA) and the Life Offices’ Association (today part of the Association of Savings and Investments SA) released a 300-page Consumer Credit Insurance Enquiry Report. Th
Problems flagged in April 2008
In April 2008, FAnews Online attended the ‘unveiling’ of the report at a low key media function at the University of the Witwatersrand. What did Judge Nienaber’s team conclude? For the most part the panel was pro credit insurance. Large sections of the report dealt with the need for credit insurance products in the credit retail space. On the other hand the panel acknowledged the deep-seated resentment felt by consumers toward credit insurance products. They concluded that consumers hate credit insurance policies because of the many ‘add-ons’ disclosed post-sale, significant profit margins recovered at their expense, perceived low claims ratios and the many technical defences insurers use to escape liability!
The panel also determined that payments to motor dealerships and furniture retailers “of remuneration for outsourcing administrative work, on the panel’s interpretation of the legislation, exceeded the permissible maximum” and that “the maximum commission provisions in the two Acts [the Long-term and Short-term Insurance Acts] resulted in anomalies when applied to non-typical cover such as consumer credit insurance!” The panel was concerned with a number of the marketing and distribution practices applied in the sale of credit insurance products too. Many who attended the report launch were surprised at the panel’s stance on possible punitive actions against the transgressors it identified during its investigation. They believed the poor practices highlighted in the report had already been addressed by the companies concerned and that no further action needed to be taken.
How to fix the credit life industry?
The panel made a number of recommendations. They said that disclosure was the cornerstone of consumer protection and suggested that all remuneration to third parties be disclosed. They wanted the identity of the insurer and the premium payment to the insurer to be included as part of the breakdown of the instalment payment. And they insisted sales representatives should alert consumers to exclusions, the consequences of non-payment, the importance of the health declaration and the need to inform family members of the existence of the policy among others.
Eighteen months later we still read about abuses in the credit insurance space. The industry is riddled with ‘part-time’ insurance salespeople punting ‘automatic’ policies. What do we mean by ‘automatic’ policies? We’re referring to credit insurance sold to consumers by retailers without their knowledge. Consumers walk to the sales desk to sign a credit instalment agreement for the purchase of appliances, furniture or motor vehicles and walk away with a credit life policy and a personal lines insurance policy to boot.
Abuses still rife
There are still too many institutions selling such products as ‘must have’ additions to a credit sale agreement regardless of the appropriateness thereof. A recent FAIS Ombud determination ordered a motor dealership to settle the outstanding balance on a Wesbank hire purchase agreement after it “foisted” a credit life policy on the buyer. The big question is: Is enough being done to police non-broker insurance distribution channels?
The Financial Services Board (FSB) has its work cut out. Consider, for example, furniture retailer Ellerines. The company operates from more than 1 100 stores and provides some form of financial service to its customers at each of these outlets. Does this mean an Ellerines salesperson (who sells insurance to customers) is a representative in terms of the FAIS Act? If so, are these salespeople fit and proper and do they meet the minimum legislated education requirements? And why do they not appear on the FSB register? Ellerines Furnishers (Pty) Limited lists a single representative and key individual on FSB License 36219. This individual is authorised under Long-term Insurance Category A and Short-term Insurance Personal Lines.
What should happen as we enter 2010? The panel got it spot on when they concluded: “The real problem is therefore not the regulation as such, but the monitoring and investigation of instances of non-compliance with the regulations.” The FSB has its work cut out to extend its monitoring function to all sections of the local financial advice space!
Editor’s thoughts: The man in the street usually realises there’s a problem with his policy at claims stage. In the event a claim is refused the consumer has a final chance for redress through the FAIS Ombudsman, who often rules for complainants in credit life cases. Statistics don’t separate insurance complaints by category, but we sense credit life complaints must feature quite high on the list. Have you encountered problems with a credit life policy or claim recently? Add your comments below, or send them to [email protected]
Comments