Finbond Mutual Bank charges consumers “excessive” and “unreasonable” amounts for credit life insurance, the National Credit Regulator (NCR) says, and it is calling on the National Consumer Tribunal to fine the bank and order it to refund consumers.
Lesiba Mashapa, the company secretary at the NCR, says the regulator has also cited Guardrisk, Finbond’s cell-captive insurer, as a respondent in the case.
Mashapa says the regulator’s claim that Finbond’s premiums for credit life insurance are excessive and unreasonable is based on an investigation by the NCR.
“The average industry premium for the sector in which Finbond operates is less than R10 per R1 000 of credit, whereas Finbond charges R128 for a three-month loan with a capital value of R700. On a R1 000 loan taken over two months, Finbond charges R136 for credit life insurance – in other words, R68 a month,” he says.
There are credit providers that offer short-term loans (up to six months) that do not charge consumers for credit life insurance at all, Mashapa says.
The NCR wants the tribunal to order Finbond to refund consumers the portion of their premiums that are above the industry average, dating back to when the bank started offering loans.
The regulator also considered Finbond’s loss ratio, Mashapa says.
A loss ratio is basically the claims paid by an insurer as a percentage of the premiums it collects. Finbond’s annual report for 2014 shows, under “Operating profit from cell-captive arrangement”, that it received R56.3 million in premiums written and paid R1.7 million in claims.
The average loss ratio for credit life insurance in the short-term credit industry is less than 20 percent, and is of significant concern to the NCR, Mashapa says. This is low compared with the average loss ratio on other short-term insurance products, which is about 60 percent.
Although there is no premium limit on credit life insurance, the regulator is keen to impose one. The NCR and the Financial Services Board have drafted credit life insurance regulations, which were sent to the Department of Trade and Industry in February. Mashapa says the publication of these regulations, which introduce a cap on credit life premiums and define benefits and exclusions, should put a stop to the exploitation of consumers.
A credit provider can insist that you take out credit life insurance, but it cannot stop you buying cover from another company.
The NCR recommended a premium cap of R4 per R1 000 in the draft code of conduct for credit providers, drawn up by the regulator in 2013. The code of conduct was abandoned when work on the draft regulations began.