Sometimes I get really irritated by what I find in the financial services industry. Often that irritation is unfairly directed at the company over whose misdemeanour I happen to have tripped. In this case the cause of my irritation is BoE Insurance Company (Nsureline) and NBS Bank, a division of BoE Bank.
Like many other financial institutions, NBS Bank has a brokerage arm that sells the bank's products and those of other institutions.
To give credit to NBS Bank, the only reason I became irritated in the first place was because it disclosed more information than most other banks on how it costs its short-term insurance on property for which NBS Bank has provided a home loan.
The two subsidiaries of BoE have a cosy arrangement, which, to my mind, is to the distinct disadvantage of NBS Bank home loan customers. And what makes it worse is that NBS Bank and other banks offering home loans use the protection of the law to pick your pocket.
This is how it works:
* You take out a home loan through a bank;
* You are obliged to take out short-term insurance with an insurer of your bank's choice to cover any unexpected event which may damage or destroy your home.
The law that prevents conditional selling of insurance does not apply in the case of home loans. A home loan lender is entitled to force you to take out insurance and to decide on the insurer. The only condition is that the premiums should be reasonable.
The lenders are permitted to do this because the bank is entitled to protect the assets against which the loan is given. Without this protection the lending interest rates would be considerably higher, and a mortgage bond would be beyond the reach of many consumers.
In this case, NBS Bank through Nsureline (its brokerage) insured the building with BoE Insurance company.
On the surface this appears kosher in terms of the law. But scratch a little and read the documentation. NBS Bank is being paid a "broker commission" for providing the insurance you are forced to take.
John Briscoe, managing director of NBS Bank, says the commission is part of an overall balancing of costs in the issuing of a home loan and should not be seen in isolation.
I cannot agree. If I pay a broker commission (particularly an extraordinary 20 percent, which is the maximum permitted in terms of the Insurance Act), then I expect to have a choice and that choice should work to my advantage. In other words, the broker must act in my interests and not in those of the company's profits.
I checked around for alternatives on a R738 000 sum insured - see the comparisons in the table below. There is a big difference in both the premiums and the excess (the first amount you must pay on any claim) between BoE and SA Eagle.
An example: premium & excess on a R738 000 sum insured
Company
Total premium
Excess
BoE InsuranceR1934.55(inclusive of VAT)R700
CGUR1863.45R250
Mutual & FederalR1752.75R350
SA EagleR1364.73R0
Briscoe says NBS's excess has been set at R700 to prevent what the bank calls the "maintenance claim". In other words, consumers have taken advantage of zero excesses, resulting in far higher claims and therefore higher premiums in the past.
He also says that by introducing the excess the bank has been able to reduce the number of false claims.
In my view, the BoE empire gets a double whammy. It gets the commission and it gets additional profit from the higher premiums.
Briscoe believes the premiums are competitive. He says premiums are set on the claims experience of the assurance company.
My argument is that they are not competitive when there is no free choice. The claims experience is not the concern of the consumer. I am only concerned about the cost to my pocket and the quality of the product.
Briscoe agrees that currently there is no free choice, mainly because of antiquated computer systems which do not allow for easy payment. However, by year-end he says NBS will be providing better choice because its systems will be updated. (About time - after all the 20 percents collected over the years!).
In the meantime what happens if I shop around and want to take out a policy with another company at a far cheaper rate and am able to provide sufficient proof that I will and can pay the premiums to another company? Briscoe says NBS Bank would entertain this proposal as long as the benefits payable under another policy are comparable to its own.
Do not in any way see this column as encouragement not to have short-term insurance on your home. You should always insure anything which you cannot afford to replace, whether there is borrowed money involved or not.
Secondly, a bank can only force you to take out short-term insurance with a particular company. If a bank insists that you must have life assurance as well, then you can take it out with any company.
A number of banks have their own or associated life assurance companies and they attempt to steer you the way of those companies. Insist on choice even if you have to deal (and this is preferable) through a non-bank broker.
The message of all this is negotiate before you sign on the dotted line. There is a very competitive market for home loans. You should not only be concerned about the interest rate you pay; you must check all the other costs.
If you are paying decidedly more on insurance premiums take this into account. Negotiate all the way down to the wire. Play one bank off against the other. It is your right and it will be in your best interests in the end. Only by putting pressure on financial institutions will they start putting your interests first.