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Consumer Affairs
Sunday, July 1, 2007
Policy change

The introduction of the National Credit Act extends the law past lending institutions to various other financial service providers, particularly as regards the sale of life insurance in conjunction with credit extension.

Says Andre Dreyer, business development actuary at RGA Reinsurance Company of South Africa, “The major impact is likely to be the changes to the charging structure of policies. Single premium credit life insurance can no longer be charged. The NCA will require that a recurring premium structure be adopted, which means we may see an increase in costs due to the greater administrative burden on insurers.”
Section 106 of the NCA pertains to credit life insurance and states that credit providers may require consumers to maintain insurance during the life of a credit agreement. However, credit providers who in the past may have only proposed their own policy of insurance will now be required to inform consumers of other available options. “While this may create a more competitive market from a price point of view, there are other issues that need to be addressed,” he notes. “Should the consumer take an insurance product with another provider, the credit agreement and related insurance could be mismatched, meaning all parties involved would be exposed to potential problems.”
This separation means that, should a consumer lapse his insurance policy, the bank or credit provider may be kept in the dark. “At that point the credit provider no longer has security on the loan and any dependants on the client’s side may be left with the burden of the pending debt,” Mr Dreyer points out.
While banks and credit providers have never been allowed to force insurance sales onto clients, there has always been a requirement to ensure security on the part of the lender. “By creating a single point of sale for financial and insurance solutions, credit providers can offer clients added value through convenience, while also ensuring that the insurance provided was sufficiently comprehensive.”
In terms of industry regulation the National Credit Regulator, established following the introduction of the NCA in 2006, will now be required to monitor credit life insurance trends. This will concern sales patterns, costs and the performance of credit life insurance in meeting the obligations of consumers. “At this stage it is believed the regulator will take on more of a monitoring role and the industry will generally be left to self-regulate. The regulator will, however, ensure that controls are in place to monitor this self-regulation, with intermediaries being placed under the greatest scrutiny,” Mr Dreyer explains.

Copyright © Insurance Times and Investments® Vol:20.6 1st July, 2007
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