Credit life insurance is one of the most widely available insurance products to low-income consumers world-wide and is often a low-income consumer?s first encounter with insurance. Therefore the question of whether consumers are getting a fair deal when they purchase it is central to the inclusive insurance debate. This paper analyses the question through the lens of the low-income consumer in South Africa. Credit life insurance.
The research in this paper follows an independent panel of enquiry, known as the Nienaber panel, to “identify and eradicate undesirable practices prevalent in the consumer credit insurance market impacting negatively on consumers”
The panel report, released in 2008, found that while consumer credit insurance ( CCI ) fulfilled a definite insurance need, it is in the first instance designed to serve the interests of the credit provider and that there were deficiencies in the system that could be exploited by unscrupulous providers. It found that CCI has a bad name – and not only in SA – and that this perception may relate to various factors, including a lack of proper disclosure. However, the panel cautioned that CCI comes in a variety of forms and is issued by a variety of insurers, making generalisation difficult.
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In 2011, government formed a Consumer Credit Insurance Task Team, jointly led by National Treasury and the Financial Services Board, to investigate the state of the consumer credit insurance industry in South Africa. The current study complements the work of the Task Team in that it offers a demand-side perspective on how consumers experience the purchase of credit life insurance, particularly in the low income space, as per FinMark Trust?s focus (using LSM 1-73 as a proxy indicator for the low-income market).
Note that this study focuses specifically on credit life insurance – insurance taken out by a consumer to cover a debt they have incurred in the event of death, disability or retrenchment, often at the insistence of the credit provider as a form of collateral security. The Task Team, as did the Nienaber panel, focuses on consumer credit insurance, a broader term referring to both credit life insurance and asset protection insurance on goods bought on credit.