Most consumers with an existing personal loan don’t even realise that they have credit life insurance – a policy that most if not all loan providers will make a condition of extending credit – let alone know what the benefits are, how much it costs, that they have a choice between providers or even when and how to claim.

It’s these glaring consumer realities that Yalu, a new digital financial services provider, aims to rectify, by educating consumers about what credit life insurance is, what the benefits are, and that they can and should be paying much less for their cover.  As a new digital insurer, Yalu makes credit life insurance smarter, faster, transparent and easier for customers to access through digital transformation.  Applying can be done on the spot via an online process that takes less than five minutes, without needing to speak to a sales agent – if that’s what you prefer.

While the mechanics of credit life insurance are not new in the market, it’s Yalu’s approach -  transparency, ease of transacting online and the promise of financial relief which includes a reward at the end of the loan - that is likely to rattle the cage of a multibillion Rand industry that has been content to ride the wave of consumer financial inexperience for far too long.   

“Credit life insurance provides the security that should a policyholder be unable to repay their loan due to death, disability or retrenchment, the credit life policy will take care of their debt to the bank.  It's an invaluable cover that protects both insured and their loved ones from the enormous strain of having to settle a debt when life circumstances may place them in a position where they simply are unable to.  Credit life insurance is much like having an umbrella on a sunny day. You probably won’t need it, but in a sudden turn of events in a heavy thunderstorm, you’ll be very grateful you have it,” explains Nkazi Sokhulu, co-founder and CEO of Yalu.

Yalu’s offering is underpinned by the following: 

• The premium automatically reduces every month as the loan amount reduces.  Customers only pay for the cover they need to secure their outstanding debt and not a cent more. 
• The policy rewards policyholders with a 10% of premium back at the end of the loan term if they have not claimed on the policy or missed a premium.
• Simplicity – you can get cover effortlessly online in under five minutes, removes the admin hassle of switching from an existing credit life insurance provider as Yalu does all the heavy lifting of cancelling the old policy, and guarantees coverage for all the benefits that the customer’s current insurer provides when switching to Yalu.
• Affordable and transparent with clearly defined benefits, premiums and speedy claims processes.
• One policy covers all loan commitments - saving on unnecessary admin fees and debit order costs for multiple policies.

“The reality is that up until as recently as August 2017 when the new credit life insurance regulations came into play, consumers were getting a very raw deal.  In a mostly unregulated environment, many loan providers saw credit life insurance as a cash-cow and took to selling their own ‘mandatory’ offerings as a condition of the loan, charging outrageous premium fees that were in no way reflective of the underlying risk of a client experiencing death, disability or retrenchment in the relatively short term of the loan period. 

“The result was that the industry experienced very low, single digit claims ratios, and an excessive if not obscene amount of profiteering at the expense of customers,” explains Nkazi.

His view is reinforced in findings released by the National Credit Regulator (NCR), showing that the credit life insurance segment of the long-term insurance industry had been riddled with problems for years, including:

• A significant proportion of customers were not aware that they had even taken out a credit life policy, or how much they were paying.
• Most customers were unaware that they can get credit life from any other insurer.
• Most customers do not know how to find standalone credit life products that they could use to replace their existing ones.
• Credit life providers charged exorbitant rates that were not reflective of the underlying risks or claims experience.
• Inconsistent benefits, definitions and exclusions were applied for death, disability and retrenchment claims, leading to high repudiation rates due to a lack of understanding of the cover.

When the new National Credit Act regulations came into force in August 2017, two key changes were introduced to protect consumers.  First was the capping of the Rand per thousand fee that insurers could charge to R4,50 per R1000 borrowed, and secondly was the standardisation of benefit definitions and exclusions across all credit life insurance policies. The latter is significant in that it means that current credit providers can no longer refuse to accept alternative credit life policies on the basis of the benefits and definitions being different to their own. 

“For years prior to the new regulations, credit life insurance benefits failed to focus on the needs of policyholders, in fact they were designed to focus on the needs of the credit providers.  Credit life insurance was the really ugly cousin, the one that the family knew about but never really talked about and was always kept in the dark.  Yalu aims to change this.  Most South Africans will have a need for a personal loan at some stage of their lives, but that does not mean they have to settle for an overpriced credit life insurance product from their loan provider as a pre-requisite for the loan. They have the freedom of choice. Switching to a Yalu Credit Life Insurance Plan is made easy and convenient via the website with the process completed in just five minutes. Yalu further simplifies the process by handling the admin of cancelling the existing policy, so the hassle factor is removed,” explains Nkazi. 

It’s also important for consumers to know that the new regulations and capping of fees only apply to new loans and not retrospectively. A quick review of current credit life policies could prove to be a real eye-opener, with many consumers horrified to find they are paying R15 or more per R1000 and have been ripped off for years already.  Consumers should not be overpaying for their credit life insurance, but many are entirely unaware that they can switch their policy for a better rate, reward and level of protection without being penalised for their choice. 

Issue date: May 2018