CREDIT LIFE INSURANCE IN SOUTH AFRICA

(00:00) Welcome to the official podcast for MyCreditStatus.co.za. We will be introducing you to credit experts, who will be providing valuable insight and advice from your financial health to improving your credit status and score. Your host for the show is Laura Palmieri.

Laura Palmieri (00:19) Welcome to another edition of MyCreditStatus podcast. We're joined today with Tlalane Ntuli, the co-founder and COO of a digital credit life insurance company. Now, credit life insurance is an insurance product specifically designed to cover the cost of your debt if you're unable to pay it back due to disability, unemployment or death. Now, Tlalane, can you briefly explain what type of insurance product this is.

Tlalane Ntuli (00:48) Thanks, thanks, Laura, for having me on the podcast. So, credit life insurance is a little life policy that most people don't know about. It is actually insurance that pays out if you pass away if you become disabled or become retrenched. So, essentially from us as an industry perspective, it falls under the long-term insurance space, and it covers you for your loans or any other credit that you may have. In particular, it's usually loans that you have with banks. It also covers you for your vehicle loan, in some cases, your home loan as well.

Laura Palmieri (01:30) Going back into that, can you give us an example of how this cover works? Does it consume a need to request this cover, or is it offered to them when applying for credit?

Tlalane Ntuli (01:38) So, that's an important point actually to make sure that people understand. Credit life insurance is tagged onto your loan. Let's take it back a little bit because it might start to get a little confusing. There are loans where credit life insurance is mandatory, which means you have to have it, and there are loans where it's voluntary. On the loans where it's compulsory, and these include loans like personal loans, overdrafts. What happens is, as you take up that particular loan, you are already getting your credit life insurance through your credit provider. So, what people often fail to do, myself included, before I came across credit life insurance, is we don't often read the terms and conditions once we have gotten the money because what we're looking for is money. It's usually for whatever cause we need it for. But in the terms and conditions, there is typically a specification of how your loan instalment will be broken down. There are three particular things that you will see there: it’s capital repayment, interest rate, and then it's credit life insurance. So, if you've gotten a loan, 99.9 percent chance is that you have credit life insurance, and you're paying for it already. There are providers, one or two in the market for personal loans that don't make it mandatory but will offer it voluntarily, but those are very few and far between. Now, that's on the compulsory side of things. On the voluntary side, where you have products like credit cards, vehicle loans as an example, there you will not be forced to take it, and it will not necessarily be lumped into instalment when you've taken up the loan. But what will happen is, they will soon call you after they’ve granted you the loan or the credit and offer it to you. So, let's say you get your credit card balance approved today, your credit card is delivered tomorrow, you're excited because perhaps it’s your first time as a credit cardholder. What will often happen is that every day when you've gotten your card, somebody will call you, remember you're still in an exciting mode, where you've just gotten this credit and whatever you need it for. Someone will contact you. They’ll say, ‘you just received a credit card from bank ABC, congratulations, are you happy?’ … ‘Oh yes, I'm happy’… ‘OK then, in that case, we'd like to offer you credit life insurance, it covers your credit card should you pass away.’ If you think about the psychology of people, at that moment, you're excited about the credit card. The bank that's given you the credit card, calling you to offer you what seems like a value-added product onto the credit card. The chances of you saying yes are very, very high at that time. But soon after that happens and you start paying back the credit card, you forget that you took the credit life insurance at some point, but what happens is you’re then paying it as part of your credit card instalment back to the bank.

Laura Palmieri (04:53) And so, until when you close your credit card, is that correct?

Tlalane Ntuli (04:56) Until when you close your credit card, that's correct. Or, in the case of mandatory loans, when you pay off your.

Laura Palmieri (05:04) When you’ve paid up your loans.

Tlalane Ntuli (05:05) … pay off your loan.

Laura Palmieri (05:07) I must be honest. Whenever I’ve applied for credit in the past, it's been a few years, no one ever called me about it. I wanted to check and see if I do have it.

Tlalane Ntuli (05:15) You most likely do on your credit card. People don't realise that. I always make an example of my dad. My dad had a great relationship with credit. He always said, ‘don't be afraid of credit if you're using it for the right things.’ So, he passed away when he was about 78 years old, about six years ago now. He had a credit card which he had maintained for most of his adult life, and he owed about R17,000 on the credit card. At the time, although it was already in financial services, I had never heard of credit life insurance. So, when he passed away, we did not want to leave my mother with any credit’s repayments. We didn't want her worrying about that kind of stuff. So, we went to check his balance on some of the. His only credit was the credit card, and his balance is about R17,000, and we decided let’s pay it and be done with it. We didn't once think to check whether there was a credit life insurance policy on that. Needless to say, that the bank itself in us providing his death certificate should have said, ‘oh, wait a minute, he had a credit life insurance.’

Laura Palmieri (06:30) And they didn't?

Tlalane Ntuli (06:31) No, they didn't. And years later, when I was doing my research on this product, I realised and went back to my father's statement. He had been paying for credit life insurance. So, that's why I'm saying most people do have it. He probably didn't know that he was paying for it because it's lumped into your monthly repayments. So, it is essential to check your statement because of what had happened, after when my dad first took out his credit card, it's now mandatory for the banks to specify how your instalment is broken down, as I mentioned earlier. So, if you are paying for credit life insurance, it should show in your statement that part of your instalment is this much. It’s usually a negligible amount, like R56 or R110.

Laura Palmieri (07:25) I'm going to check my balance, to be honest with you. Because I just got a new card, actually, funny enough on Discovery. So, I need to check that out.

Tlalane Ntuli (07:38) And I think the other important message around credit life insurance, Laura, is in the same way that people inform their loved ones about their funeral policies or their life insurance policies. Your loved ones need to know about credit life insurance policies as well. Because where it is meant to be that the bank itself tells you about it, my own experience as an example that I've just used is that banks don't tell you that your loved one was paying credit life insurance and that money goes into that big bad pocket and its profit. So, what you should do is, tell your loved ones that, ‘I've got this loan… at this particular bank, I know there's credit life insurance on it.’ And even if there isn't credit, even if you don't know for a fact, there is credit life insurance. If it is a personal loan, 99.9 percent chance that you are paying for that for credit life insurance on that loan anyway. So, we must tell our loved ones about it.

Laura Palmieri (08:33) It's a very valid point. I'm going to check my card straight after this podcast.

Credit life insurance in South Africa, is it regulated?

Tlalane Ntuli (08:47) It is, by the National Credit Regulator. It's pretty interesting what happened with credit life insurance in South Africa. A few years ago, maybe about ten years now, there was what was called the “Lewis Case’. What happened with the Lewis case was, it came forward that Lewis furniture had been charging people credit life insurance on their credit. Because they give credit, you buy furniture on credit, and then you pay Lewis. Now, what they were doing was they were charging people absorbent amounts on credit life insurance, up to R17 per R1000. If you owed a couple of hundreds of R1000, you could calculate for yourself how expensive that quickly becomes. The second thing was, they were charging people credit life insurance for retrenchment cover, and the person would have been retired, so why are you covering them for retrenchment cover? There were some other issues around that case as well. What happened post that was, the National Regulator then decided to release some regulations around credit life insurance. These were really important, and they actually created a shift in how credit life insurance is being sold, how it's been designed, and how it's been priced.

(10:16) The first shift was around the pricing specifically. So, as I said, there were creditors that were charging people up to R17 per R1000. The first thing that they did was, on mandatory credit life insurance, you cannot charge an individual more than R4.50. So, which means on your personal loan, you cannot be charged more than R4.50 for every R1000 that you all. That was the first thing it was crucial because many banks had to scramble to change their systems and pricing strategy. Then the second thing was, if a customer is to request their policy to be cancelled and replaced by another policy, you must replace it. That's another important aspect. Initially, customers are not allowed to cancel because the banks or their creditors would often say. ‘well, how do you cancel if you still owe us the money? You can't.’ Now, the regulator said, ‘if a customer requests their policy to be cancelled based on them having a different policy, you must cancel.’ And then the third and most important outcome of the credit regulator process was that there is a standardisation of the definition of benefits. Now, that sounds more complex than it is. What happened in the industry was that they would often issue the policy for providers to avoid cancelling policies, not covering the same benefit. So, for example: ‘Tlalane, you have an ‘ABC’ bank policy and bank ‘DEC’ policy as well, you can't cancel ours for theirs because they have a different definition of debt to what we do.’ The credit regulator said, ‘there is a standard definition across the board of what credit life insurance policy is. It must cover three things: retrenchment if you're employed, and if you are not retired or self-employed, then credit life insurance will always cover retrenchment. A second thing a credit life insurance policy will always cover a disability, and then the third thing is a credit life insurance policy will always cover death.’ So, those three things were important in terms of the definition of what a credit life insurance policy was and, therefore, made it simplistic for customers to then be able to cancel from one policy to another. So, those are the regulations that came out in 2017 that have created a slight shift in how credit life insurance has been provided in the past.

Laura Palmieri (13:19) The other thing, as we mentioned, is the education that most people don't realise all this. A) They don't realise they’re paying for it, and B) they don’t realise they can shop around.

Tlalane Ntuli (13:28) Absolutely, and after the introduction of Yalu in 2018, there are now quite a few providers who offer standard loan credit life insurance. At the time, Yalu was the only standard loan credit life insurance provider. But what that essentially means is that first of all, you don't need to take credit life insurance from your credit provider. You’re allowed to shop around, and you're certainly entitled to cover yourself with a different type of policy. The other thing that many people don't know, Laura is, your life cover can be used in place of a credit life insurance policy.

Laura Palmieri (14:09) Oh, for death?

Tlalane Ntuli (14:10) For death and disability for life covers that have disabilities.

Laura Palmieri (14:16) Oh, that’s interesting.

Tlalane Ntuli (14:17) Yes, so let's say you have a loan with bank ABC once again, and it’s a R500,000 loan, God forbid. And they ask you to take credit life insurance, you can say to them, ‘actually, I've got life cover, it covers me for life disability…’ and some life covers now cover retrenchment… ‘and I would rather use that to cover my loan versus to take up another policy.’

Laura Palmieri (14:48)

Tlalane Ntuli (14:53) Yeah, that's correct.

Laura Palmieri (14:55) Until that loan is paid up?

Tlalane Ntuli (14:58) That’s correct.

Laura Palmieri (15:03) So, I wanted to ask you this. For example, on a mandatory loan that one takes out; when you have been approved for that loan, and they say you need credit life insurance, and you say I want to shop around, they won't provide that to you unless you've confirmed that you signed up with someone with regards to your credit loan is that correct?

Tlalane Ntuli (15:22) That’s correct. So, not necessarily signed up as much as opposed to. It's like a policy that is already agreed on if I can put it that way. So, yeah, perhaps the easiest way is just to stay signed up for another policy. What we used to do was, we used to be able to provide customers with a quotation, and that quotation would be sufficient to say, ‘actually, I'm getting my credit life insurance from a different provider.’

Laura Palmieri (16:01) But at least that is provided, and if you're not going with that loan provider, that loan won't be released. Is that correct?

Tlalane Ntuli (16:07) That’s correct.

Laura Palmieri (16:10) I think in my personal opinion, I think where a lot of people get caught up with it. As you mentioned, people are usually desperate when they're playing for a loan. The last thing they want to do is shop around for something so small that maybe R50 a month is not a big deal when you're getting this loan and your financial distress.

Tlalane Ntuli (16:25) That’s true.

Laura Palmieri (16:26) So, that where there's a catch as well, I think.

Tlalane Palmieri (16:29) Yeah, and then the important thing is to allow yourself to go through that process, get the money, wait it out for two, three, four months, even a year and go back and shop around. Because we’re all trying to find savings, no matter how small in our budget at the moment. We always are. No matter how the economies perform, we all want to find some way of saving. Where can I save a couple of Rand and put that back into my pocket? So, take a loan out now. In a years’ time, you can go then and get a replacement policy, a replacement credit life insurance, a policy that will then replace the one that you've taken out.

Laura Palmieri (17:15) That’s fantastic. You pretty much answered all my questions. The last one we're going to ask is, do you have any latest stats you can share with us regarding the impact of COVID-19 and claims filed?

Tlalane Ntuli (17:27) I don’t have them off the top of my head, but the idea is, there has been over a twenty percent, maybe even over twenty-five percent increase in claims on retrenchment, specifically. So, where we would have gotten one claim a month on retrenchment, we will now get five claims a month. So, definitely, the claims ratio on retrenchment specifically has gone up. That’s the first thing. Then the death claims have also increased quite a bit because one, there's been a little bit of awareness that started around credit life insurance and the number of deaths brought about by Covid. So, those are the two from a claim’s perspective. On the collection side as well, Laura, what we've seen is interesting. A lot of people have abandoned some of their premiums or instalments. Still, they are very loyal to their credit life insurance instalments. I think that's indicative of the fear around, I could potentially die and leave my family with this insurance or instead with this credit, or I could lose my job. I won't pay my credit, so I better keep up with my credit life insurance premiums. While as before, for us, it was kind of normal collections rates, maybe eighty percent collections, we saw that shoot right up to about eighty-six percent collection on our policies.

Laura Palmieri (19:20) That's quite significant.

Tlalane Ntuli (19:21) I think it's interesting because, of course, if you think about its logic, it makes sense. Still, because we expect that many people would have lost their jobs, we plan for the worst, and we said it's unlikely that people continue to pay their loans or rather than credit life insurance policies. But it is interesting what people prioritise when they are in a fear-driven space. I'm sure the same goes for their funeral cover, we don't do funeral cover, but I'm sure the same goes for that. So, it's been an exciting learning curve for us.

Laura Palmieri (20:04) Well, it's been an exciting learning curve for me because I was pretty ignorant about credit life insurance like I said.

Tlalane Ntuli (20:10) As are many people.

Laura Palmieri (20:11) I think we need to spread the word out; I think many people need to be aware of this.

Tlalane Ntuli (20:16) That’s specifically why I have no issues talking about my own personal experience because I can imagine if someone like me, being as financially savvy as I am, having even been in the insurance industry when my dad passed away, not to have known about it. How many other people that are not in the industry, that are still financially savvy some of them, but couldn't care to always go through the statement with a fine-toothed comb and are unaware and therefore, how much of that is going towards the providers and being counted as profit just because people didn't claim.

Laura Palmieri (20:57) No, that's a fantastic ending point. To Tlalane, thanks for being on our show and providing us with insight into this insurance product. And thanks all for joining. All the details show notes will be listed on our podcast. Simply got to MyCreditStatus.co.za. Tlalane Ntuli (21:14) Thanks, Laura.

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