Picture: ISTOCK
Picture: ISTOCK

Credit life insurers will no longer be able to charge consumers exorbitant fees as new regulations published this week have put a lid on premiums.

Trade and Industry Minister Rob Davies released final regulations prescribing the cost, cover and benefits of credit life insurance, which pays out in the event of a consumer dying, losing their job or becoming disabled while a credit agreement is in force.

"The National Credit Act already regulates credit life insurance but does not prescribe limits on its cost, cover and benefits," said Lesiba Mashapa, company secretary of the National Credit Regulator, which drew up the regulations.

The regulator has hauled furniture retailer Lewis to the National Consumer Tribunal for selling loss of employment and disability insurance to pensioners and self-employed consumers. Shoprite was also referred to the tribunal for selling this type of cover to pensioners and social grant recipients.

The final regulations, which are expected to come into effect in six months, ban the provision of occupational disability cover to pensioners and provide for cover other than retrenchment for self-employed people.

"There is a problem of credit life insurance offered to consumers not being suitable and appropriate for the needs of consumers," said Mashapa. "Specific rules needed to be introduced to provide guidance to the industry."

The final regulations set a monthly credit insurance limit of R4.50 for each R1,000 owed on all credit agreements except mortgages. Ordinary mortgage agreements have a R2 limit for each R1,000 owed. In practical terms, a mortgage agreement of R700,000 should carry a maximum monthly credit life insurance premium of R1,400.

"This would significantly affect lenders such as Lewis, IEMAS and Finbond, who charge many multiples of this for similar or less benefits," said Clark Gardner, CEO of Summit Financial Partners.

Monarch Insurance, Lewis’s insurance arm, charged about R8.75 for each R1,000 borrowed in 2016. In submissions on the draft regulations, Lewis said it did not make excessive profit on the rates it charged.

Lewis CEO Johan Enslin said it was too early for the company to comment on the final regulations because it was assessing their effect on its business.

"We are reviewing the regulations to determine if any other changes are required," said Capitec spokesman Charl Nel.

African Bank said it was still reviewing the regulations.

Providers are not allowed to simply charge the maximum premium allowed, because the regulations state they will be required to provide proof to the National Credit Regulator that the premiums cover "actual risks and liabilities associated with the credit agreement, including the risk of the event/s insured against occurring".

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