You're free to choose your homeowner's cover
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| You're free to choose your homeowner's cover |
By Neesa Moodley of Personal Finance | www.persfin.co.za The National Credit Act, which comes into full force in two weeks, will entrench your right to choose your homeowner's insurance, opening up the market to increased competition and prompting mortgage bond originator Mortgage SA to launch a building insurance policy this week. Homeowner's, or building, insurance typically covers risk to the bricks and mortar or immovable structures of your home and its outbuildings, including the fixtures, fittings and the improvements, such as granny flats, thatched lapas and swimming pools. It should not be confused with household insurance, which is cover for the movable contents in your home, including furniture and jewellery. 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. Maintain your property properly If you don't maintain your property, your insurer could prove negligence on your part and reject your claim. It is in your interests to: # Inspect your drainage systems regularly to ensure that water and effluent can flow freely; # Check your interior and exterior walls for signs of cracking; # Ensure you know where the geyser safety valve is located and that it is accessible in an emergency; and # Insulate your geyser's expansion and overflow pipes to stop them from freezing, which can result in the geyser bursting. What you should check when taking out homeowner's insurance Use this checklist to get the most out of your homeowner's insurance: # Some products offer you "extras", such as a domestic employees personal accident plan, which pays out if your domestic worker has an accident on your property. If you do not want these add-ons, check that you are not being charged for them. # Some policies place limits on the amounts you will be paid out for specific risks. For example, you could be paid out only R5 000 if your geyser bursts. # Read the fine print for exclusions. For example, cover for a burst geyser does not necessarily mean you are also covered for what is known as resultant damage - the water damage to your carpets, ceilings and walls. Or you could be covered for resultant damage but find you have to pay two excess amounts - one for the geyser and one for the resultant damage. # Inform your insurer of any alterations or renovations to your home, so that the amount for which you are covered can be adjusted appropriately. # Find out if your policy automatically includes cover for the period during which renovations are being carried out to your house or if you need to request it. This cover is sometimes known as builder's insurance and can cover you for any damage to your property while it is being renovated. # Be absolutely clear about what is included or excluded in your cover. For example, your swimming pool might be included with one insurer but excluded on a policy with another insurer. # Although thatch roofs and lapas are visually appealing, they do increase your premiums and excess amounts significantly because of the increased fire threat they pose. # Check that you are covered for the replacement value of your home and not its depreciated value, which would leave you with a shortfall. The depreciated value is the amount you initially paid for the house. This should be reassessed each year because as time passes, it will cost you much more to replace your home than when you bought it. # If you are planning to rent out your property, ask about additional cover for loss of rental income and the cost of providing alternative accommodation for your tenant should the property become uninhabitable. If, for example, the geyser bursts and the house is flooded, you, the landlord, are obliged to find the tenant alternative accommodation until the house is habitable again. |
