About 5 million South Africans don't know they have insurance to help weather a financial storm
'Our survey revealed that 26% of credit life policy holders have no idea that they have that protection,' the Financial Services Conduct Authority said
More than a quarter of South Africans who have credit life insurance policies — which could spare them or their families a financial crisis — don’t know they have them, the Financial Services Conduct Authority (FSCA) said on Wednesday.
“Our survey revealed that 26% of credit life policy holders have no idea that they have that protection,” said Caroline da Silva, the FSCA’s divisional executive of regulatory policy, at a virtual press conference.
“That’s about five million people, and the majority of them took out those policies when opening store accounts or taking out unsecured personal loans.”
What happens at the point of sale in those cases is problematic, she said. “This is a very long-standing problem and one which we will be focusing on.”
Credit life insurance is intended to cover a consumer’s monthly payments on their credit agreements, including personal loans, store and credit cards and car finance, should they be retrenched, become disabled, or die.
And thanks to a recent National Credit Act amendment, most credit life policies cover loss of income as well, such as that suffered by many during this year’s Covid-19 pandemic.
In keeping with the treating customers fairly regulatory approach, credit providers should make sure that what they are selling actually suits their customer’s purpose, Da Silva said.
“Products need to be simplified, with very clear wording.”
But if customers continue to blindly sign contracts because they’re keen to get their fridge or bed, she said, millions would continue to pay for credit insurance and other extras which they weren’t aware of, didn’t understand and would never claim on.
“Australia also had a major problem with consumer abuse around credit life policies, and they tackled that by detaching the agreement relating to the product from that pertaining to the financial extras,” Da Silva said.
The insurance products are sold a week later, ensuring that the consumer really applies their minds to what they are buying, what it’s costing them and when and how to claim.
“That may not work in SA because of our distribution channels,” Da Silva said, but the idea of detaching the two agreements was worth considering.
Lyndwill Clarke, the FSCA’s head of consumer education, said consumers needed to be taught to make sure that they know what they are signing, keep a copy of the document in a safe place and review it often to know what they are and are not covered for. And many consumers lack the confidence to go back to the store or loan company which sold them the policy to raise their queries or concerns, he said.
It also emerged during the conference that credit life companies have recently increased their premiums, by extending the consumers' credit terms, unless they proactively elected to increase their monthly premium instead.
Da Silva said premium increases were inevitable with consumers’ increased risk of loss of income.
“But the biggest fear is that in applying risk-appropriate pricing, policies became unaffordable, creating a 'protection gap'. We are engaged with global regulators about how we can deal this issue,” she said.
The FSCA had noted a spike in cryptocurrency “investment”, said divisional executive for investigations and enforcement, Brandon Topham.
“We don’t register companies to sell cryptocurrency, and it’s illegal for a company who is registered with the FSCA to sell funeral policies, for example, to then claim to be registered for the sale of crypto.
“If they are not registered to sell the product, they can’t call it an investment,” Topham said. “Then consumers must realise that it’s a gamble.”
For warnings about scams, helpful financial advice, and to check if a company is registered, visit www.fscamymoney.co.za.