How to protect yourself when buying insurance
You buy insurance to cover your property and your life, but are you really protected after you fork out money to pay for it?
When consumers buy insurance they are protected by the Treating Customers Fairly Roadmap and the Policy Holder Protection Rules that form part of the Long- and Short-term Insurance Acts. Insurance is a grudge purchase for consumers and they often consider cancelling their insurance if their claims are not paid out or when they have to cut expenses due to the harsh economic climate we currently live in.
However, if you cancel your insurance because you are disappointed with how your claim was handled or you think you cannot afford it anymore, consider this: if your car is not insured and gets stolen, there will be no insurance payout. Also, you still have to pay off the loan that you took out to buy the car. You now have to pay back the bank’s money and you cannot afford another car. How will you get to work or take your children to school?
Therefore, it is better to be insured against unforeseen events and if you know more about insurance and how you are protected as a customer, you will find it easier to navigate the insurance space.
The difference between the Treating Customers Fairly (TFC) Roadmap and the Policy Holder Protection Rules (PPR) is that the TFC was implemented in 2011 to inform financial services stakeholders of the approach the Financial Sector Conduct Authority (FSCA) intended to adopt in implementing a “Treating Customers Fairly” approach to the market conduct regulation of retail financial services in South Africa.
The PPR was implemented in 2018 to protect the integrity of TCF and ensure there are rules to enforce the legislative side of TCF, explains Claire Klassen, consumer financial education specialist at Momentum Metropolitan.
Is treating customers fairly the same as being polite to customers? “TCF has nothing to do with being polite to a customer, but is aimed at ensuring that consumers understand the product they selected after going through the process of financial advice with their financial adviser. TCF is central to the corporate culture of the organisation.”
Treating customers fairly
Klassen says TCF is an outcomes based regulatory approach that seeks to ensure that financial institutions deliver specific, clearly articulated fairness outcomes for financial services consumers to tackle the unique consumer risks of financial products and services.
Six principles form the pillars of TCF that financial service providers must implement to ensure the protection of their potential and existing customers and they have these corresponding desired outcomes:
- Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm culture.
- Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly.
- Customers get clear information and are kept appropriately informed before, during and after the time of contracting.
- Where customers receive advice, the advice is suitable and takes account of their circumstances.
- Customers get products that perform as firms have led them to expect and the associated service is both of an acceptable standard and what they have been led to expect.
- Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.
The three final desired outcomes are improved customer confidence, the supply of appropriate products and services and enhanced transparency and discipline in the industry.
Policyholder protection rules?
The policyholder protection rules (PPRs) are regulations applicable to short-term insurance companies and to some extend intermediaries to ensure that the interests of insurance policyholders’ are protected and that insurers, distribution channels and other regulated entities fulfill their obligations towards policyholders and have in place standard procedures and best practices in sale and service of insurance policies.
What does the PPR mean for consumers? Klassen says after the PPR came into force in 2018, consumers are considered above the sales process and it is no longer about earning commission or money for a financial adviser, but about providing appropriate advice and not bombarding consumers with advertising in a language they do not understand.
The PPR contains 20 rules. These are some of them:
Rule 1: Regulatory treatment of policy holders
Insurers must act honourably, professionally and fairly in all cases where they work with policyholders or potential policyholders. If the insurer first contacted you, he should immediately explain exactly what it is about.
Insurers are also required to have proper processes and procedures to ensure that policyholders are treated fairly to ensure that they:
- can rely on working with an insurer where the fair treatment of policyholders is at the heart of the company’s culture
- products are designed to comply with the needs of particular types and categories of policyholders and are accordingly directed towards particular groups
- get clear information and are kept adequately informed before taking out a policy, during the time they have it and beyond
- receive appropriate advice for their circumstances
- get products that perform according to the expectation created during marketing and the service for which the expectation was created
- do not face unfair obstacles when they want to change or cancel a policy or file a claim or complaint.
Rule 2: Product design
When insurers design insurance products, they need to ensure that they meet the needs of particular policyholder groups so that they are not sold to people for whom they are not of value.
Rule 3: Credit life insurance
Insurers may not provide a compulsory credit life insurance policy that does not comply with the credit life insurance regulations promulgated by the minister of trade, industry and competition.
Rule 4: Cooling-off rights
Policyholders can cancel a policy if it has a term longer than 31 days and no benefit has yet been paid or claimed or an event insured against under the policy has not yet occurred, within 14 days after the date of receipt of the policy contract and the insurer must refund all premiums or moneys paid, subject to the deduction of the cost of any risk cover actually enjoyed. The insurer must respond within 31 days and this rule only applies to new policies and variations of existing policies.
Rule 5: Negative options
Insurers and their representatives may not, where policyholders have more than one option, determine that an option applies unless the policyholder expressly indicates that he does not wish to do so, unless it is required by law or the insurer can prove that it is necessary for the fair treatment of the policyholder. This should also be pointed out to the policyholder. This rule applies to new policies or changes or renewals of existing policies.
Rule 6: Fixing premiums
Insurers must establish fair premiums that balance the company’s interests with the interests of consumers and may not charge fees over and above the premium, other than a fee that is part of the policy or that is permissible under law. Additional fees must be pointed out to the consumer. This rule applies to new policies or changes or renewals of existing policies.
Rule 10: Advertising
Insurers must follow procedures that stipulate that a senior manager approves advertisements and takes reasonable steps to ensure the advertisement complies with this rule. The person designing the advertisement may not also approve it. If an advertisement does appear that does not comply with this rule, the insurer must withdraw or fix it immediately and notify everyone who relied on the advertisement.
Advertising should be factually correct, give a balanced representation of important information and not mislead people. It should also not disproportionately inflate benefits or create unrealistic expectations and it should include restrictions, exclusions, risks and fees and not make them sound like benefits.
All parts of the advertisement should also be the same so that some parts of the information are not more prominent than others. Advertising should also not use words that encourage consumers to make hasty decisions based on urgency. The name of the insurer must be clearly indicated and plain language should be used in advertising and complex terms should be defined so that consumers can understand them.
When using telephone calls or voice or text messages for advertising, the insurer must give the consumer the opportunity, without paying a fee, to opt out of receiving advertising in this medium.
Rule 14: Continuous evaluation of product performance
Insurers should monitor products continuously to ensure they meet your needs and provide value for money.
Rule 17: Claim management
Insurers must have a system for managing claims that meet certain requirements. All communication with claimants must be in plain language and indicate what information the insurer desires, where, how and with whom the claim can be filed and how soon claims should be filed. Claimants should be kept informed of how the insurer is progressing with their claims, reasons for delays and the insurer’s decision on claims.
Rule 18: Complaints
Insurers must establish a proper and effective complaints system to ensure complainants are treated fairly, that must comply with certain requirements.
Rule 19: Termination of policies
If an insurer suspends a short-term insurance policy in cases not related to premiums not paid or a change of risk or a suspension by law, the insurer must still provide cover for 31 days after receiving proof that you are aware of the suspension or the period until proof is received that you have other insurance, whatever is the shortest.