NCA changes will protect consumers buying on credit
Changes to the National Credit Act will help protect consumers buying credit life insurance.
The National Credit Regulator has made changes to the National Credit Act that will protect consumers who purchase credit life insurance.
The new rules came into effect on August 9, and will only affect agreements made after this date.
We spoke to Warren Collocott, chief operating officer at SWITCH2, to find out more about what the changes mean for consumers.
If you have bought something on credit, there is a good chance you have credit life insurance. So what exactly is credit life insurance?
Collocott says credit life insurance provides cover to credit providers when consumers are unable to pay their debt in the following instances:
- Death or permanent disability – balance in full is paid by the insurance
- Temporary disability - up to 12 months instalments is paid by the insurance
- Loss of income - up to 12 months instalments is paid by the insurance
- Hospital costs cover, critical illness and maternity benefits are sometimes added
Companies have come under fire in the past for incorrectly selling the insurance. One of the concerns highlighted in a 2014 technical paper released by the Treasury was "lack of transparency in the total cost of credit".
The new rules will, among other things, prevent credit providers from charging customers excessive rates for the insurance.
Collocott says the changes stipulate the maximum amount insurers can charge consumers is R4,50 per R1,000 for unsecured and R2 for secured credit. The previous average was between R5 and R9 per R1,000. However, under certain circumstances, they will be allowed to charge R5.50 per R1000. But SWITCH2 says they cannot compel the customer to take this additional cover.
Treasury also found that the cover did not meet the needs of the target audience, for example, insurers selling retrenchment cover to customers who were self-employed, and therefore did not need that specific cover.
The NCA changes will prevent incidents like this from taking place again.
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Here's what else Collocott says the new rules cover:
- Stipulates the minimum benefits a customer must enjoy
- Clearly states that you cannot sell income protection to the unemployed and retired. A couple of retailers were referred to tribunal in 2014 for selling this type of cover to pensioners and social grant recipients.
- Allows providers to provide additional cover voluntarily, but cannot compel the customer to take out extra insurance cover
- And most importantly states clearly that credit provider must accept the substitution, provided minimum benefits are met.
While just about every consumer who purchases on credit likely has credit life, many people are unaware that they have the insurance, and those who do are not fully aware of the benefits.
Collocott says claim rates for credit life are "terribly low", and a 2013 study suggested that they were around 20% compared to claim rates of about 60% on household insurance.
A poll conducted on SWITCH2 customers found that 78% did not know or were not sure what credit life was, while 74% of those asked thought it was free.
"Credit life insurance is a worthwhile form of insurance if you die, become disabled or lose your income as it protects you and your family and is easily accessible to any South African who holds debt (doesn’t require lengthy underwriting), however, it is less worthwhile if you are covered for a whole bunch of risks which don’t apply to you because it then becomes expensive insurance for which you don’t claim," says Collocott.
If you have purchased anything on credit, make sure you are aware of what benefits you are covered for as far as your credit life insurance in concerned.