Why insurers prefer debit orders

7/11/2010 12:40:06 PM

I called iWYZE, a new car insurance product from Old Mutual.

They gave me a good quote and I was ready to sign up until they said they do not accept stop orders. They want me to sign a debit order. I then asked them to give that to me in writing and I'm still waiting for the email confirming that.

-The question is this, can an insurer refuse to take a stop order? Is this not an infringement of my rights as a consumer?

When I called 1st for Women to cancel my insurance as I was ready to move to iWYZE, I got another strange demand from them too. They wanted me to give them written proof that I had taken another insurance. I refused point blank as I felt it was none of their business. They then went on about if the car is financed. I told them that is a matter between the financier and myself, and not them.

Are they allowed to ask for proof of insurance when one wants to cancel the insurance contract? - Phume

Robyn Farrell, managing director of 1st for Women Insurance Brokers, responds:

It is not a question of not allowing stop orders but rather one of agreeing to a preferred method of premium collection.

At the time of the sale of a policy, the method of premium collection is agreed to with the client. The reason why debit orders are preferred is because they are generally a more convenient and reliable method of collection, and do not involve the client having to go to a bank to set up a stop order.

Insurance policies are often amended by clients, for example by the removal or inclusion of insured goods, and these amendments almost always cause a premium change.

With stop orders, this means that the client would have to visit his/her bank to rearrange the existing stop order.

In contrast, the debit order deduction can be altered at the time the client makes the amendment. In addition, a debit order facilitates ease of reconciliation for the insurer considering that there are hundreds and thousands of these payments on a monthly basis.

Regarding demanding proof of insurance:

This is a requirement of the Finance Institution when a vehicle is financed or a home is bonded.

With both, having insurance protection over the financed item is usually an obligation placed on the insured in terms of his/her finance agreement.

Further, in both such cases the insurer notes on the policy that the item is financed and with whom it is financed. The interest of the Finance House is noted as the insurance is their security in the event of something happening to the insured item.

Therefore, when a policy is to be cancelled, in order to protect the Finance House interest in the insured item and to ensure that the client fulfils his/her obligation in terms of their finance agreement, the client is asked to provide proof of alternative insurance so that when the one insurer goes off risk, the financed item remains protected by an insurance policy.

Bank privacy

Absa Brokers have been my short term insurers for many years. After I requested changes to my schedule to reduce my monthly premium, I received a revised schedule from a company called Mustofin.

This company now has all my personal and banking details which were entrusted to Absa.

Am I justified in questioning my right to privacy and my right to choose who insures me?

If Absa Brokers have so many clients to deal with that they have to shed them in the marketplace, why are they now seeking clients under a new banner, Absa I Direct.

Or have they simply weeded out the pensioners to clear the playing field in the search for more lucrative potential?

I am a widow and Absa is the guardian of my assets. Their action, to my mind, constitutes a breach of trust. - Euodia Steyn

Dorcas Chuene of Absa Insurance and Financial Advisers responds:

We confirm that you do have the right to privacy, the right to choose your insurer and the right to information disclosure.

This is the main reason why changes in the insurance schemes are communicated to clients.

The FAIS Act also requires from financial services providers and representatives to furnish to clients details of the contractual relationships that exist between the product providers and suppliers.

When organisations agree to a contractual relationship, they draft an agreement which lists out the terms and conditions of non usage of critical business information of each other in any form.

This is also a process that is being followed when insurance schemes agreements are being concluded, mainly for protection of the business and the customer.

What actually happened in your case is that Absa Insurance and Financial Advisers has always been your adviser and PSA Captive the product provider. Mustofin Insurance Brokers has a contractual relationship with PSA for administration of after-sales service, claims and amendments.