"Credit providers and insurers are measured by different yardsticks, which is problematic for insurers and potentially for consumers," says Christine Rodrigues, partner at Bowmans.
While life insurers fall under the Financial Sector Regulation Act of 2017 and the Financial Sector Conduct Authority (FSCA), credit life providers do not. This has implications for the application of TCF principles, she says.
"If you are regulated by the FSCA, all aspects of a credit life insurance product are subject to TCF. But where credit providers fall outside the ambit of the FSCA, their compliance requirements are not as onerous as the TCF-regulated entities," Rodrigues says, referring to this disparity as "the elephant in the room".
For consumers, this could be problematic in that inefficiencies may affect the delivery of credit life offerings.
"Credit life policies in South Africa are regularised in terms of the amounts of premium that may be charged and the minimum cover that must be provided, but there are still aspects of inefficiency in the offering of the product," Rodrigues says.
For example, it can take a consumer up to 12 months to change credit life policies. ‘"With any other type of policies, 30 days’ written notice is usually sufficient. Twelve months is a very long period to change policies."
In most instances, the delay is on the side of the credit provider, which has to agree to a policy substitution, she says. "The consumer is required to provide an alternative product that covers at a minimum what she or he currently has. There is usually no incentive for the credit provider to agree to the substitution because either the insurance policy is underwritten within the same group or the TCF yardstick does not regulate such an institution."
Such practices hamper consumers’ ability to enforce their right of substitution by limiting their freedom of choice, says Rodrigues. "They can also create conflict between the TCF-regulated company and the non-regulated provider."
The reason is that the insurer is reliant on the credit provider agreeing to a substitution and until then, cannot accept it. "This is the case where a credit life policy is compulsory and a condition of a loan. The repercussion is that in most cases, it is the insurer that is seen in a negative light."
Rodrigues notes that credit life insurance is a valuable risk-mitigating tool for consumers, as has become clear during the Covid-19 pandemic. "Covid-19 has led to consumers losing their incomes due to retrenchment. Those who did have credit life policies at least had some degree of financial relief for a limited period of time."
However, the pandemic could also turn out to be the catalyst for change in the credit life industry. We have seen in the insurance industry how the pandemic has highlighted to consumers their rights and many are taking on Goliath to enforce their rights.
"Certain principles of TCF are going to be tested in court given the issues relating to the coverage of certain business interruption policies," Rodrigues says. This is likely to also influence ancillary services and products to insurance policies.
"As the financial sector aligns itself to a more consumerist approach, which in the main relates to the principles of TCF, it will be important for everyone to be aligned in a culture of being fair. Economic confidence and sustainability cannot rest on the shoulders of one sector; everyone and all products and services need to be aligned."
