Interview with Willem Lombaard by RiskSA magazine. (11/06/2008)

Can you give us an outline of the new value-added credit protection products Cardif Pinnacle has launched recently on the short-term market?

When Mr Joe Average buys a car, he is typically making the second biggest purchase of his life (his house being his biggest). To buy insurance for this purchase should seem vital.
Credit protection insurance products are about protecting the customer’s financial obligations in buying such a large asset. Credit life and credit shortfall insurance have been around for many years, but we have found that they do not always completely satisfy our customers’ needs. In addition to offering these tried-and-tested products, we are also launching new products to give clients a better mix of protection.
For example, Return to Invoice effectively insures your client’s car against depreciation when it is stolen or written off, whilst the Deposit Protector will pay out the deposit paid when they bought the car. Instalment Protector pays their monthly instalments to the bank while their insurance company is dealing with the theft or total loss claim, so they don’t need to worry about their instalments while their insurance company is making up its mind. HelpUPay pays their monthly instalments for a limited time should they suffer a life event, e.g. death, disability, retrenchment, etc., ensuring that their monthly commitments towards their car payments are met while they are recovering or their estate is being settled.

Your Return to Invoice product is unique to South Africa. What makes this product viable to our market?

South Africans absolutely love their cars – this is a fact. But cars depreciate, so your client’s beloved car is worth less today than when they bought it yesterday or last year. If your client’s car is stolen or written off in an accident, the insurance company will typically pay out its market or retail value. Return to Invoice effectively pays the difference between what your client’s car is worth today and what they originally paid for the car, as per the original invoice – hence the name.

Your website tells us that one of the major reasons for growth of creditor insurance is attributable to consumers’ appetite for credit. What do you see happening to this appetite in the future?

Demand for consumer credit over the last few years has been very strong, but has become somewhat more depressed during the last few months, largely due to higher interest rates, tighter credit controls under the new National Credit Act and higher cost of living, fuelled
largely by the cost of energy. However, things will normalise, as they always do. The South African economy is robust and the fundamentals continue to be solid. Recovery is inevitable.
This being said, demand for credit remains at relatively high levels despite difficult economic conditions. I anticipate that the demand for credit will remain high and will improve as economic conditions and consumer confidence improve. I will not venture a guess as to when we can expect improvements – this is best left to the economists. But I will say that I remain bullish about the economic prospects in the not-too-distant future.

How has Cardif Pinnacle’s credit insurance business been affected by the dramatic interest rate increases? Are consumers still able to afford paying extra for credit protection? (Some perceive it as a non-essential extra.)

All things being equal, when car sales fall, so do creditor insurance sales,if the market penetration remains constant. Fortunately, all things are not equal. Our strategies to increase market access are starting to pay off significantly. Fewer customers these days are buying cars which they can barely afford. This is a positive result of the new National Credit Act, which ensures that consumers are not over extended. Insurance purchases are, therefore, not so much an affordability issue, but rather a value issue. Responsible customers will continue to be aware of their exposure to risk and will continue to buy valuable insurance products, as long as the value proposition is strong. Cardif Pinnacle’s new product range is aimed at strengthening our value proposition to the consumer.

What are your feelings on a financial literacy education campaign, which will include the media and trade unions, to educate consumers about their rights?

As members of the South African Insurance Association and the Life Offices Association, we support consumer education fully. An informed customer is a happy customer. It is a fact that insurance and financial services in general can be quite complex, even for more educated persons. We have a responsibility to help our customers understand what they are paying for. The financial literacy campaign will go a long way to achieving this objective.

The ombudsman recently criticised credit granters for selling “useless” guarantees and extended guarantees, as well as maintenance contracts that consumers do not require because they are already covered against faulty goods in common law. What place do such guarantees have, if any, if they are considered ‘useless’?

Cardif Pinnacle does not operate in the warranty market at this point in time; therefore, it would be unfair of me to comment on the ombudsman’s criticism, other than to say that I do have an extended warranty policy on my car, which I find extremely useful. I can, however, comment on the regulatory framework. The Financial Advisory and Intermediary Services Act requires financial advisers to be registered, and qualified to give advice. If the adviser is found to have given poor advice, he or she can lose his/her license to operate.
Poor advice must never be condoned. I am sure consumer protection legislation, consumer pressure groups and consumerism in general will flush the few bad apples out of an otherwise good system. The sooner the better.

Do you have any further advice or comments for our readers?

Our customers are becoming more sophisticated every day. We have to stay with the times and provide our customers with insurance products that satisfy their needs. To continue to offer the old-style products will make the value proposition stale. Consumers will rightly have complaints about our inability to satisfy their needs, and we are increasingly seeing this in negative media reports. It is our responsibility to continue to listen to our customers in order to protect our industry’s reputation. We must use a little bit of our grey matter to come up with value-building product-, process-, and pricing solutions that will make the consumer sit up and say, “Hey, perhaps these guys do understand something about what I want!” Hopefully our new product range will contribute in some small part to the achievement of this objective.

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