Guiding consumers since 2009

Do insurance companies take advantage of you?

By Danielle van Wyk

Many South Africans have had to adjust to doing more with less because of rising interest rates, tax rates, and fuel and food price increases. Usually during tough economic times people tend to cut back on important expenses such as insurance. Some would argue that this is justified as insurers have the potential to take advantage of consumers.

Taking a look at insurance costs

“There are costs involved to run the day to day business of an insurance company, administration house or brokerage that is why there are fees being charged. To deliver a specific service,” stated Santie Stevens, a representative for Insurance Busters.

The law further makes it compulsory for insurers, administration houses and intermediaries to declare all fees and for what the fees are for. There are costs involved when activating and maintaining an insurance policy, that is why most insurers have a once off start-up fee, added Stevens.

These fees ought to very clearly be stipulated on the policy schedule that each client is issued with, and any fees that are being charged during the course of the cover should be explained to the customer.

“The fees that are being charged may differ from one company to another. These fees are regulated and with the Retail Distribution Review (RDR) currently being looked at by the Financial Services Board (FSB) it will be even more regulated to ensure that all fees being charged are charged for the correct reasons,” explained Stevens.

The actual premium rate reflected under each section per insured item on the schedule, goes into a “pool” from where claims will be paid. It is important to note that the money that is then paid towards this “pool” is not used to run the day to day business cost, but purely to pay out claims, highlighted Stevens.

The choice, however, remains with the customer if he/she accepts the rate, and terms and conditions from a specific insurer or not. The fees are normally included in the total rate quoted by the insurer or administration house who usually has a binder agreement in place.

“All factors are disclosed to a customer when dealing through an intermediary or advisor that will assist the client in making an informed decision,” said Stevens.

It is also worthwhile noting that insurance companies will base their rate on the risk they need to take on. So if you are considered a higher risk according to their criteria you will, in all likelihood, be expected to pay more.

“No insurance company or administration house is out to take advantage of any customer. But due to people trying to enrich themselves from insurance companies over the years, [they] have rules, known as underwriting rules, as to what risk they will accept and what they won’t accept,” reiterated Stevens.

Tips for taking out insurance

It is always best to consult with and use a professional registered intermediary or advisor to help you make an informed decision on what can be self-insured and what should be shared with an insurer. “An intermediary can guide a client to ensure they take out the correct product offered by the various insurers, looking at all factors and not only the monthly rate,” Stevens advised.

Remember, the more risk you share with an insurer, the higher the monthly rate will be. “That is why the customer can choose to increase the excess to decrease the premium. This means the client will be taking a bigger share of the risk and share a smaller portion with the insurer,” added Stevens.

The more small claims you make against your insurance policy, the higher the premium will become.  Huge amounts of small claims can result in the insurer giving you notification of cancelation and should this happen, any other insurance company may refuse to take on your risk. Should other insurers, however, decide to take on your risk, you may be listed as a high claimer and therefore seen as high risk, Stevens explained.

There are many ways to reduce the monthly rate of your insurance cover if you share the correct risk with an insurer, but it is important that you get professional advice to assist you in making these decisions.

Another tip would be to do an annual review of your cover, and the costs involved, because as circumstances change, so should your cover.

It is also important that consumers read their schedule and policy wording. “Even though cover can be quoted online and activated over the telephone to make it quick and fast, you may have taken out the incorrect cover that is not suitable for your specific insurance needs,” Stevens warned.

It is also always best to speak to a specialist in short term insurance cover that can guide you and help you understand what every amount reflected on your schedule is going towards, and what is covered and what is not covered.

Despite the notion that insurance tends to be on the expensive side, especially in an economic climate where people are already struggling to make ends meet, it is also a necessary expense when opposed to forking out thousands on those unforeseeable expenses.

Ultimately it is up to you as the consumer to manage your spend and decide what is a priority in terms of having insurance cover or not. While insurance can get pricey, it is important to educate yourself around your needs and the cover available to avoid being taken advantage of.

Handy tip: To gain information on and apply for everything from car and household insurance to disability and funeral cover, visit Justmoney and apply today.

Recent Articles

Featured Raise a deposit for your house in 5 steps

If you’re a first-time home buyer, you could be lucky enough to be  approved for a 100% bond, but if you aren’t, a 10% deposit might be required. This  could be a daunting prospect.  However, a few financial tweaks to your lifestyle and spending habits could get you a foot in the property door and, once you’ve purchased a property, significantly reduce your long-term bond repayments.

Get personal with your finances – and tie the knot

As time passes, your financial products may not live up to your needs. Therefore, it’s important to take stock of what you’re paying for and adjust where necessary. We got in touch with financial advisers to find out how you can get your finances in order, and what you should do to ensure you’re financially stable.

Personal loan or business loan? The best way to finance your business

When starting your own business, you may have to rely on external funding. Perhaps you qualify for a personal loan, but would it be better to take out a business loan instead? We got in touch with a specialist to find out whether it’s best to take out a business loan or a personal loan to assist you with your ongoing business or start-up.

What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?


Cash Rewards up to 20% when you swipe your Absa Card at Spar

Price: Available on request
When: Daily
Where: Nationwide

The Royal Elephant Hotel Valentine's Day Special

Price: Available on request
When: 14 February 2020
Where: Centurion

Premier Hotels Vegan Dinner Special

Price: R225 per person
When: Monthly
Where: Nationwide