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You're free to choose your homeowner's cover |
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You're free to choose your homeowner's cover
Rhys Dyer, the executive director at Mortgage SA, says his company's decision to enter the homeowner's insurance market was spurred by recent rulings by the Ombud for Financial Services Providers and the National Credit Act, which was tabled into law in June 2006. The Act gives you the freedom to choose an insurer to cover the physical structure of your house.
Dyer claims the increased competition will lead to greater savings for homeowners as banks and independent insurers, such as Mortgage SA, Mutual & Federal and Santam, vie for your business.
"The new offering at Mortgage SA dovetails with our home loan, mortgage protection and household insurance offerings. We estimate the increased competition will save homeowners nationally R650 million in annual premiums," he says.
After the National Credit Act takes full effect next month, you will still have to take out homeowner's insurance before the home loan is granted. Before the ombud's ruling bank practice was to grant your home loan on condition that homeowner's cover was through their approved provider.
Bank must approve switch
Although the Act will allow you to choose your homeowner's insurance, the bank financing your home will still be entitled to request proof that you have taken out building insurance when it grants you a loan. If you want to switch insurers, the bank must approve the new cover before it will allow you to switch insurers.
In 2005, Charles Pillai, the Ombud for Financial Services Providers, ruled against Nedbank when a homeowner, Helena Dennis, complained that the bank and its associated short-term business, Nedbank Group Insurance Brokers, had forced her to take out homeowner's cover with Nedbank.
Pillai ordered Nedbank Group Insurance Brokers to cancel the cover it had put in place over Dennis's property and to refund all the premiums she had already paid. Nedbank was also ordered to accept her existing Santam insurance policy as homeowner's cover over the property.
Nedbank claimed it was entitled to insist that Dennis take out a policy with its insurer in terms of Section 43(5)(a) of the Short Term Insurance Act. According to this section of the Act, if money was loaned on the security of the mortgage of an immovable property, the policyholder would not necessarily be entitled to choose the the property's insurer. The rationale behind this section was to protect the credit provider, who could ensure that the homeowner's cover was adequate to protect its risk.
But the banks had interpreted the section to mean that they, as lenders, could dictate to the homeowner which insurance policy to take out.
Pillai ruled that Section 43(5)(a) of the Short Term Insurance Act denied consumers the right to choose. He said although the intention of the Act was to ensure that the insurance policy would protect the interests of the creditor, it did not entitle a creditor to impose its own insurance.
In terms of the Financial Advisory and Intermediary Services (FAIS) Act, you must be able to make informed decisions when using financial services, and implicit in this is your right to a choice of insurance provider.
"The FAIS Act prevails when any other law regulating market conduct in the rendering of financial services is inconsistent or in conflict with the FAIS Act," he said.
This week, Pillai said while his ruling in the matter of Dennis versus Nedbank was based on an analysis of the provisions of the FAIS Act, it had paved the way for the incorporation of Section 106 in the National Credit Act. "This development can only benefit consumers and stimulate the market in this area of activity," he says.
Find the cheapest quote
According to Section 106 of the National Credit Act, a bank that is financing your property can ask you to take out homeowner's insurance for the full asset value of your property.
But the bank is not allowed to demand that you purchase or maintain insurance that is unreasonable or at an unreasonable cost to you. This means that if you can get a cheaper quote for the same cover with an independent insurer, you have every right to take out a policy with that insurer rather than with the bank's in-house insurance division.
However, banks are likely to ask you for proof that you have homeowner's cover in place and will have to satisfy themselves, as your credit provider, that the cover you have is adequate and appropriate.
Clifford Brooke, the managing director of Standard Bank Insurance Brokers (Stanbic), says a small proportion of Standard Bank's customers has always preferred not to insure their properties with Stanbic and this figure has grown "slightly" since Pillai's ruling against Nedbank.
Switching from your bank's insurers to an independent insurer of your choice could take as little as 48 hours if the bank is satisfied that the policy is adequate to cover your mortgage bond or its risk amount, that the policy includes cover for events such as fire, theft, storms and lightning, and that the cover is with a recognised insurer, according to Brooke.
However, Personal Finance is aware of cases where banks have dragged their feet on authorising the switch - up to four months in one case. After numerous letters and other correspondence, the homeowner concerned was refunded for the premiums he had to pay in the period between requesting the switch in insurers and the final authorisation.
Brooke says Standard Bank recently hired research company Ask Afrika to ascertain the number of clients who are likely to switch cover. The investigation showed that about 50 percent of Standard Bank's clients would not consider switching to an independent insurer.
According to Brooke, the survey results show that clients are more comfortable with in-house insurance because they feel that the bank has a vested interest in their property and is more likely to ensure that their insurance is up to scratch.
However, your bank, as a credit provider, should be ensuring you have adequate cover regardless of whether you take out insurance with its in-house brokers or an independent insurance company.
If you feel you have not been given adequate freedom of choice when deciding on an insurer for your homeowner's cover, you can complain to Pillai. His office can be contacted at: PO Box 74571, Lynnwoodridge, 0040; email info@faisombud.co.za; fax 012 348 3447; or sharecall 0860 324 766. |
Posted on Tuesday, July 24, 2007 (Archive on Monday, August 20, 2007)
Posted by hayleym Contributed by hayleym
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