Credit life growth in the doldrums

By Staff Writer

Regis Nyamakanga

Financial Services Editor

GROWTH in credit life insurance in SA has been hit by tightening macroeconomic conditions, prompting banks to diversify into noncredit life products, a study by reinsurer RGA Reinsurance has found.

The 2008 RGA banc- assurance survey issued yesterday showed vehicle finance was the worst affected, with growth plunging in the past two years.

Credit life insurance covers loans if the policyholder defaults on payments.

Bernard Ross, RGA Reinsurance Company of SA executive director, said: “The sector that has experienced the least growth is the vehicle finance sector.” The 2006 survey highlighted growth of 70% a year compared with 6% now.

This was due largely to the introduction of the National Credit Act last June and rising interest rates. Personal and microloan sectors also had slower growth in 2007, but were still growing at more than 50% a year. Worsening economic conditions and resulting tightening of the credit cycle was affecting the sale of credit life business.

“The full effects of the act were felt by the industry in 2007 with a number of survey respondents reporting a decrease in credit life business,” Ross said.

Top South African banks and insurers took part in the survey, and some attributed the slackening in life credit insurance growth to “stricter qualifying criteria and internal controls”.

Ross said: “For funeral and complex underwritten business, none of the participants reported integrated processes with the distribution channel in the bank. This is an area banks and insurers are aiming to improve on. For traditional credit life products, 75% of participants indicated integrated processes.”

The survey also showed the number of policies not taken up within the 30-day grace period had risen due the requirement for greater disclosure at the policy inception stage, he said.

The act meant lower premium levels as single premium business was no longer allowed. Insurers were focusing on processes to increase penetration and manage lapse risk associated with recurring premiums.

Noncredit life products banks were diversifying into complex life products such as disability and critical illness cover.

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