Insurance warning for South Africans

In a tough economic climate, skipping or cancelling insurance premiums may seem like a way to save money, but it exposes consumers to financial risk, policy cancellation, denied claims, and future difficulties in obtaining insurance.

Recently, the National Financial Ombud Scheme (NFO) warned that struggling consumers should not sacrifice their short-term or non-life insurance premiums to save money.

This solution can result in more financial difficulties if a loss occurs when the premium is not paid, as the insurance provider can refuse to pay.

While insurers do try to keep their prices low, they will inevitably increase – likely every year. For many consumers, it may simply feel too expensive to keep paying.

“Everyone’s worried about their finances right now, but it’s vital that you don’t cancel your insurance or default on your insurance premiums,” said Edite Teixeira-Mckinon, Lead Ombud of the Non-life Insurance Division of the NFO.

“It’s hugely risky to cancel your insurance, as it is in a time of crisis when you actually need insurance the most. And don’t just stop paying the premium; bad finance decisions can come back to haunt you later.”

Teixeira-Mckinon said on the Kaya Biz podcast that the NFO saw a 5% increase in complaints last year across all non-life products.

These were specifically about non-payment of premiums. They also saw a 6% increase in complaints related to policy cancellations.

To safeguard insurance policyholders by ensuring continuous cover, the insurer must grant the policyholder a grace period to pay an unpaid premium.

Policyholder Protection Rule 15 provides that an insurer shall ensure that a policy contains a provision for a period of grace of not less than 15 days after the relevant due date to pay the premium for that month.

However, the NFO has also seen cases where insurers didn’t apply their policy wordings or didn’t comply with Policyholder Protection Rule 15, she said.

Insurers must allow a 15-day grace period after a failed debit order, but sometimes, they calculate that period incorrectly or don’t properly apply their policy rules.

Insurers can reject your claim

Teixeira-Mckinon noted that notwithstanding the provisions of Rule 15, an insurer may still reject a claim because the premium was not paid.

She cited a recent complaint that arose after a motorist was aggrieved about cancelling his policy because the premium for March 2024 was unpaid.

The insurer subsequently refused to process his claim for accident damage to his vehicle, which took place on 13 April 2024.

According to the insurer, the complainant’s policy was cancelled in March 2024 after two unsuccessful attempts to collect the premium.

The first attempt was unsuccessful, and the second attempt, made during the grace period, was also unsuccessful. The insurer then cancelled the policy.

The relevance of the premium for March 2024 is that premiums are paid in advance, and the complainant needs to have paid the premium during March 2024 to enjoy coverage for April 2024.

Teixeira-Mckinon said the complainant submitted that he was unaware of the missed payments and was willing to pay the outstanding premium.

He hoped that doing this would reinstate the policy since, in his view, this demonstrated that he acted in good faith to rectify the situation.

“While under no obligation to do so, some insurers go the extra mile and remind the policyholder of the unpaid premium via SMS, a telephone call, or emails.”

However, these measures are courtesy measures. Ultimately, the policyholder must ensure that the premium is paid on time to enjoy cover in the event of a loss.

“The insurer demonstrated that it had acted in accordance with the Policyholder Protection Rules and the policy provisions,” Teixeira-Mckinon said.

“Therefore, the cancellation of the policy resulted in the complainant not enjoying cover for the accident damage to this vehicle. The NFO agreed with the insurer’s stance.”

Saving money on your insurance

Teixeira-Mckinon said that while insurance premiums may seem like a futile expense when there is no claim, incidents that give rise to claims are often beyond human control and can occur at any time.

Both parties must fulfil their responsibilities in ensuring that premiums are paid according to the agreed-upon terms of the contract to ensure that the policy continues to provide cover.

Instead of just not paying the premium due to financial constraints, it is advisable that the policyholder contacts their broker or insurer and attempts to renegotiate the cover.

For example, if comprehensive motor vehicle insurance has become too expensive, consider selecting limited cover. Users can opt for insurance that covers damage or loss caused to the policyholder’s motor vehicle by fire or theft.

They could also insure against damage caused to another person’s vehicle in the event of an accident. While this won’t cover damage to their own vehicle, they at least don’t have to finance all the risk themselves.

When it comes to contents insurance, some insurers are open to negotiation. If you live in a secure complex and believe the risk of theft is low, you could ask your insurer to exclude that coverage and focus on other risks.

In this way, the policyholder is not fully exposed should a loss arise, thereby adding to their financial burden. Additionally, non-payment can affect your credit record since you will be noted as a bad payer.

Also, it is important to remember that if an insurer cancels a policy due to non-payment of premiums, the consumer must disclose the cancellation when they next want to take out insurance.

The failure to disclose such a cancellation may constitute a misrepresentation entitling the new insurer to cancel the policy when it discovers the non-disclosure, leaving the consumer, once again, without cover.