The State of Consumer Credit Insurance in South Africa

Credit Life Insurance is something most South Africans are familiar with. It the first type of commercial insurance that the majority of local consumers first encounter, and is meant to provide you with peace of mind should you or your family experience death, disability or loss of income due to injury, illness or involuntary unemployment. While we place trust in the commercial insurance companies/brokers offering us these products, the reality is business insurance companies in South Africa are often unscrupulous when providing us with credit, to our detriment. Research has determined that the market is very lucrative - it is estimated that premiums netted R16 billion in 2012 alone. While there are almost seventy insurance brokers in South Africa, the 15 largest for about 90% of premiums, with credit life cover making up 67% of the market by premium.

Earlier this month, South Africa's National Treasury and Financial Services Board released a report reviewing the business insurance company practices in the local Consumer Credit Insurance sector, as a way to try identify consumer abuses and to get more input and data from the industry, ultimately to make sure that consumers remain protected from problems such as over-indebtedness. It is also to ensure fair treatment whether you are seeking home insurance, insurance for pensioners, funeral insurance or a hospital cash plan.

The report identified four key issues that consumers struggle with when seeking credit. There is a lack of transparency in the total cost of credit. Credit offerings and add-on products such as warranties and club membership fees are presented as a single cheap insurance option, making it difficult to compare prices, as one does when seeking an online insurance quote. Premiums are higher when a risk is insured under a policy, and credit products aren't meeting the needs of the market. Some businesses offer benefits that many consumers may not be eligible for and can never claim against - for example retrenchment cover offered to those who are self-employed.

So what does this mean for you as a consumer? Ultimately, it appears that due to the characteristics of the market, it may be necessary to regulate the Consumer Credit Environment differently to the broader short term insurance market, especially when it comes to products and services directed at lower income and vulnerable customers. Currently, all areas of insurance are governed by the Long-term Insurance Act of 1998, the Short-term Insurance Act of 1998, or the National Credit Act of 2005. According to the report, the first two acts €provide the overarching legislative framework for insurance business generally,€ while the latter is responsible for providing additional requirements relating to credit insurance€.

Original article extracted from Integrisure Insurance