Credit life insurance may be the first type of insurance that many low-income consumers encounter. As such, it can offer an opportunity for introducing consumers to the concept of insurance and, if it offers value to them, can lead to uptake of other insurance products in future– a phenomenon that can be termed positive market discovery. However, credit life insurance can also lead to consumer protection concerns if consumers are not aware that they have insurance, or if the fact that a captive market is created leads to exorbitant pricing. Such practices may lead to disillusioned customers, thereby disincentivising uptake of other insurance products.  
South African legislation, through the National Credit Act of 2005, mitigates the potential negative implications of credit life insurance by requiring that consumers be allowed a choice of insurance provider when required to take out mandatory insurance, and that financiers should inform applicants of such right and may not charge any surcharge or fee on the insurance offering. It is however not clear to what extent consumers are aware of and exercise this right in practice.     In 2011, the government formed a Consumer Credit Insurance Task Team, jointly led by National Treasury and the Financial Services Board, to investigate the state of the consumer credit insurance industry in South Africa. To complement the work of the Task Team, Cenfri on behalf of FinMark Trust, commissioned a study to offer the demand-side perspective on how consumers experience the purchase of credit life insurance, particularly in the low income space. The purpose of the research was to investigate dynamics and trends in the credit life insurance market in South Africa. Through a mystery shopping exercise and consumer interviews, it sought to determine whether customers in practice have a choice of insurance provider and whether the terms and conditions are clearly explained to them. The findings suggest not.  
This research served as input for a recently published document by National Treasury and the Financial Services Board to consider the policy options for consumer credit insurance in South Africa.    
The following article was first published the original article here