1. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION The South African Insurance Association (the SAIA) and the Life Offices Association (the LOA), together represent most of the Short- and Long-term Insurance Sector in South Africa. The Insurance Sector fully supports the general principles of the National Credit Bill. Insurance Sector is strongly committed to ensuring broad and meaningful access to insurance products for all South Africans. Certain provisions relating to credit insurance will have a negative impact on the business of Insurers, as well the consumers of insurance products.

2. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Section 102 This section of the Bill currently does not allow the inclusion of the insurance premiums in the principal debt (even when this method of payment is chosen by the consumer). We believe that consumers should have the choice of paying the premiums in this way or monthly or annually.

3. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Section 102 Therefore we propose the following addition (to what can be included in the principal debt) ….Section 102.(1): “(e) an insurance premium due in respect of either a credit life insurance policy or other insurance policy purchased to cover any property that is pledged as security for a credit agreement.” A prerogative for this addition to section 102 should be that choice is offered to the consumer

4. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Section 102 This amendment would: Allow the consumer a choice of payment method Ensures insurance cover is in place even if monthly repayment of debt is not met (particularly important when claiming a retrenchment benefit) if premiums are included in the principal debt Avoids duplicate bank charges on debit orders for insurance and loan repayment Remove risk that payments could be missed and impact on credit provider’s risk on the asset pledged. Is a core method envisaged to create access to insurance by the Financial Sector Charter

5. Section 102 Monthly premiums are administratively expensive : Example of added cost Loan ValueEquivalent monthly cost of single premium Monthly cost If single premium disallowed Percentage increase 100,00013324585% 50,00068138105% 20,0002974160% 10,0001653241% 2,500837348%

6. Section 106 - Credit insurance Section 106(1) “A credit provider may require a consumer to maintain sufficient credit life insurance; or insurance cover against any damage to or loss of any property that is pledged as security for their credit agreement, to cover the consumer’s outstanding obligations to the credit provider at any time during the term of the credit agreement.” Where the insurance cover is being used to cover damage or loss to property that is being pledged to secure a debt, it will not be sufficient to only have cover in place for the consumer’s outstanding obligations to the credit provider. suggested wording: added to the last paragraph of Section 106 (1): “or the value of the property that is pledged as security for a credit agreement, as the case may be.”

7. Section 106(4) “ The credit provider proposes to the consumer the purchase of a particular policy of credit insurance contemplated in subsection (1) or (2 )” It is the Department of Trade and Industry interpretation that this section will only apply where no choice is given to the consumer. The following change in wording will make this intention clearer and therefore less likely to be misinterpreted: Suggested wording: Section106 (4) be changed to: “(4) If the credit provider requires the consumer to purchase a specific policy of credit insurance contemplated in subsection (1) or (2)-”

8. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Section 106 Section 43 the Short-Term Insurance Act 53 and Section 44 of the Long Term Insurance Act 52 of 1998 (as amended) provides that where a consumer is required to provide credit insurance cover to provide security for a credit agreement, he or she must be given the freedom of choice to either pledge an existing insurance policy or to take out a new policy. A consumer who chooses to take out a new policy, has freedom of choice over which insurer and/or intermediary to use. These provisions in the Short-and Long-Term Insurance Acts protect a consumer’s right to freedom of choice over the purchasing of credit insurance. Therefore these provisions should guide the manner in which choice should be given to consumers in terms of Section 106(4) of the Credit Bill.

9. Section 106(7)(b) “ The cost of a policy of insurance contemplated in subsection (6) may be charged to the consumer either by; (b) Way of a single premium at the beginning of the credit agreement, provided the credit provider must refund the consumer the unused portion of that premium, if the consumer pays out the credit agreement at any time before the anticipated end of the agreement” As soon as the unused portion of the premium is refunded the insurance cover will cease. Providing a mechanism for the consumer to keep insurance cover in place is a way of furthering the aim of creating broad access to insurance products and provides consumer protection. A suggested wording is:Section106 (7)(b) be changed to: “(b) ….the credit provider must offer a refund to the consumer of any unused portion of that premium….” NATIONAL CREDIT BILL SAIA/LOA SUBMISSION

10. Mortgage Protection Cover If no choice of insurance is given - the consumer can only be required to insure the value of the outstanding loan and not the full asset value (in terms of the current Section 106(4)). Some immovable property insurance cover does not cover all eventualities Immovable property, unlike most other assets, typically appreciates over time. Where only the outstanding loan balance on a mortgage bond is insured and the value of the property is worth significantly more than the outstanding loan, then the required level of insurance cover in the Bill will be inadequate

11. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Mortgage Protection Cover A suggested wording is: The following be added to the end of Section106 (4)(b)(i): “provided that where a consumer is required to maintain insurance as a condition of being granted a loan in respect of immovable property, then the consumer can be required to maintain insurance cover for the full asset value of the immovable property with an insurer that is acceptable to the credit grantor, for the full duration of the mortgage bond.”

12. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Policy Loans One of the benefits that may be provided, where a policy has sufficient investment value, is a loan by the insurer to the policyholder against the proceeds of the policy.

13. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Policy Loans One of the benefits that may be provided, where a policy has sufficient investment value, is a loan by the insurer to the policyholder against the proceeds of the policy. The loan relating to an insurance policy is inherently a part of the insurance policy itself as the contractual terms and conditions of the policy of insurance specifically provide for loans and surrenders. Such a loan does not result in any indebtedness other than the policy terms and does not fall within the ambit of “credit” as envisaged in the Bill.

14. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION Policy Loans However we believe that the definitions of “credit provider and "secured loan" give rise to some ambiguity as a “credit provider” as defined in the Bill means “the lender of a secured loan”. A “secured loan” means an agreement…. in terms of which a person – (b) retains, or receives a pledge or cession of the title to any movable property or other thing of value as security for all amounts due under the agreement. In our view, the definition of “secured loan” as it currently stands could potentially cover the conventional policy loan that an insurer grants to a policyholder against the security of a policy.

15. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION The LOA therefore submits that for the sake of clarity the exclusion provided in section 8(2) be extended to read “..policies of insurance, including a transaction in terms of which money is lent by a long-term insurer* to its policyholder on the security of a long-term policy issued by that long-term insurer”. * as defined in the Long-term Insurance Act, no 52 of 1998

16. NATIONAL CREDIT BILL SAIA/LOA SUBMISSION National Credit Bill is a very positive step towards protecting both consumers and providers of credit. To ensure that both consumers and insurers are are not negatively affected in the future - We respectfully request that our proposal be accepted and that the requested changes are made to the Bill.