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					LEARNER’S STUDY GUIDE Process a Claim in Credit Risk Insurance (14978)

NAME: ORGANISATION: COURSE NO.: OR RPL:

Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Contents

Instructions to the learner UNIT 1 Reconciling a customer statement (SO1) UNIT 2 Interpreting and applying a policy document (SO2) UNIT 3 Legal aspects that apply to claims assessing (SO3) UNIT 4 Processing a claim (SO4) Answers to self-tests Addendum 1

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Instructions to the learner1
Introduction
Welcome Welcome to the learning intervention that deals with the processing of a claim in credit risk insurance. This learning intervention forms part of a Level 4 skills programme (Process a Claim in Credit Risk Insurance), which enables you to meet the minimum requirements to be “fit and proper” in terms of the Financial Advisory and Intermediary Services (FAIS) Act 37 of 2002. Purpose of this This learning intervention will provide you with the knowledge and learning skills to provide insurance solutions by processing a claim in credit intervention risk insurance. Overall outcomes By the end of this learning intervention, you should be able to do the following:     Target audience Delivery medium Reconcile a customer statement. Interpret and apply a policy document. Understand legal aspects that apply to claims assessing. Process a claim.

This learning intervention is intended for people who work in the field of credit insurance. This training will take place in the form of self-study. In other words, you are required to work through this self-study guide and complete the included activities. The activities are comprehensive, practical, and experiential in nature. They are based on “real work” where you work with real workplace scenarios and case studies. Learning assumed to be in place  You should be competent in Communication, Mathematical Literacy, and Financial Literacy at NQF Level 3.

Prerequisites

Learner’s roles You are required to and  work through this self-study guide, responsibilities  complete activities,   ask for guidance and support when required, and complete the assessment.

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References to the male gender throughout the Learner’s Study Guide are only to facilitate reading and should be interpreted to refer to the individual in question, irrespective of gender.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Introduction to this selfstudy guide

Processing of a claim in credit risk insurance is the central theme of this training and is discussed in detail in this self-study guide. This guide makes use of icons to guide you in your learning process. Below is a description of these icons: Icon Meaning Self-tests and activities Icon Meaning Assignments and assessments

Study

Outcomes

Read Action verbs This guide uses action verbs in its learning outcomes. verbs tell you what you must DO. Action verb Apply Analyse Describe Explain Identify Indicate Explanation Make use of the relevant rules; put into practice. Put into a specific order or relation. Show by clarifying the scenario. Can you write in your own words to explain? Ascertain the origin or nature, or define characteristics. Show by using examples. Action

The diagram below illustrates the broad process to follow when processing of a claim in credit risk insurance and will also illustrate how the self-study guide is structured.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Processing of a claim in credit risk insurance (14978)

UNIT
Start here

STUDY

READ

SELF-TEST/ ACTIVITY

ASSESSMENT

UNIT 1/SO1 Reconcile a customer statement.

The outcomes for this unit

The content of Units 1.1-1.4
Complete Self-test 1

UNIT 2/SO2 Interpret and apply a policy document

The outcomes for this unit

The content of Units 2.1-2.2
Complete Self-test 2

UNIT 3/SO3 Demonstrate knowledge and understanding of legal aspects that apply to claims assessing.

The outcomes for this unit

The content of Units 3.1-3.5

Complete Self-test 3

UNIT 4/SO4 Process a claim.

The outcomes for this unit

The content of Units 4.1-4.2

Complete Self-test 4

Start preparing for your final assessment

Pa

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Unit standards

The overall outcomes and specific outcomes of this learning intervention are aligned with registered Unit Standard 14978. This means that if you are able to demonstrate competence in the learning outcomes, which are aligned to the specific outcomes of the unit standard, you will qualify for credits, which will contribute towards the 120 credits required for a national certificate at Level 4. If you are unable to demonstrate competence, you will not obtain any credits for the unit standard. This learning intervention is aligned to the following unit standard as illustrated in the table below: Unit standard title Unit standard number NQF level Number of credits 4

Process a claim in credit risk insurance

14978

4

This means a total of four credits towards a national certificate. How is this self-study guide made up? This course has four units. Each unit corresponds to a specific outcome (SO) as indicated in the SAQA documentation (Addendum 1). Each unit has a number of sub-units. These sub-units correspond to the assessment criteria (AC) as indicated in the SAQA documentation. Note: SO1AC1 refers to Specific Outcome 1, Assessment Criterion 1. Assessment In order to obtain the four credits for Unit Standard 14978, as discussed previously, you must provide evidence of your competence after working through this self-study guide. Providing evidence of your competence will occur during the assessment process. The laid-down policies, procedures, and related issues regarding assessments will be explained to you before the assessment takes place. You will also be given an overview of, or instructions on how, the assessment will take place, what evidence you must produce, how you must prepare yourself, etc. A qualified assessor or your line manager will guide and support you throughout this process. Resources The following resources will assist you in preparing for your assessment: Reference Company-specific policy document Availability Policy issue department

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Our wish to you

Everything of the best in your studies. Enjoy every moment that you spend studying. It is time well spent in making sure of your future.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

UNIT 1
Reconciling a customer statement (SO1)
After completing Unit 1, you should be able to do the following: Outcomes for this unit   Analyse customer statements, organise the information on a reconciliation sheet, and balance it to the statement amount. Analyse reconciliation sheets to determine trading history, the capital amount claimed, the claim amount, adverse information, special conditions, and automatic suspension of cover. Record policy information on worksheets. Explain how to clear a suspense account by determining the legal fees paid and salvages received, and know how to allocate the amount to the claim.

 

Study the material for each unit before moving on to the activities.

1.1
What is a customer statement?

Analysing customer statements (AC1)
A customer statement is a statement that is sent to customers on a regular basis with details of their contract with the insurer. It shows such things as premium amounts, how much has been paid so far, and how much is still repayable. It gives the customer a better idea of how his account is running.

Sample customer statement Customer details Policy number: _____________________ Insured: _____________________ Statement date: _____________________ Description a. Sum insured b. Monthly credit risk c. Monthly repayment d. Monthly repayment total e. Repaid in total f. Credit risk premiums total g. Capital paid total h. Interest paid total Amount R10 000 R100 R1 300 R1 400 R7 800 R600 R6 000 R1 800

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Definitions on statement

a. Sum insured – this is the amount of the finance taken for the goods bought, for example, a vehicle or store accounts for furniture or clothing, etc. b. Monthly premium credit risk – this is how much the credit risk premium is costing the customer on a monthly basis. c. Monthly repayment – this is the capital and interest amount of how much the customer is paying on a monthly basis for his finance, excluding the premium for credit risk; for example, the monthly payment for goods purchased is R435. This is made up of R300 repayment on capital, and R135 is an interest repayment. d. Monthly repayment total – this is the total monthly repayment that is being paid by the customer, including credit risk, capital, and interest; for example, the total premium paid monthly by the client is R500. This is made up of R300 repayment on capital, R135 interest repayment, and R65 for the monthly premium on the credit risk insurance policy. e. Repaid in total – this is the amount that the customer has repaid in total on his account; for example, the client has paid the total monthly premium as mentioned above for three months. The monthly repayment total, therefore, is 3 x R500 = R1 500 in total. f. Credit risk premiums total – this is the total amount of premiums that have been paid for credit risk only.

g. Capital paid total – this is how much capital has been repaid in total by the customer. h. Interest paid total – this is how much interest has been repaid in total by the customer. What is a reconciliation? Sample reconciliation sheet Reconciliation sheet Policy number: _____________________ Insured: _____________________ Statement date: _____________________ DETAILS Sum insured Payments made on capital to date Payments made on interest to date Payments made on credit risk to date Payment poss. claim Totals R6 000 R1 800 R600 R1 600 R10 000 R10 000 DR CR R10 000 A reconciliation is a way of checking that the account balances and that the figures quoted are correct.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

1.2
Trading history

Analysing reconciliations (AC2)
This is an overall picture of the customer’s transactions. If we look at the big picture, the trading history can range from the amounts he has financed, to how often he finances and takes credit risk, to the payments that are made on each account. With regard to the reconciliation for a particular account, we must ensure that the correct payments are made on the correct date, with no defaulting on the premium. Any overdue portion of the agreement is not covered and must be excluded from the claim.

Capital amount claimed

This is the amount that has been claimed with regard to capital. It is the initial capital amount borrowed, less payments that have been allocated to capital, that is, part of the payment that is not allocated to credit risk insurance, interest or administration fees, and commission. This is the total amount that has been claimed, which is made up of capital as well as interest and fees calculated up to the date of notification of the claim. This may be the monthly instalments of the finance that has been claimed for in total, which would mean that the insured is claiming on a monthly basis until he can recommit to payment. Alternatively, in cases of permanent disability, it may be the total amount outstanding on the finance – this may also then be referred to as the settlement amount of the finance borrowed. Adverse information is information that has discrepancies or differs from other information when doing comparisons. Whenever a claim is made, the details thereof are noted; however, if the customer defaults on payments, this type of information is also noted and passed on to other organisations who keep details of the defaults. These are always listed in the policy schedule and policy document. They refer to specific areas where there are total or part exclusions. Special conditions also outline specific requirements that are needed by the insurer to pay the claim, for example, different paperwork that is required for a particular claim type. An unemployment claim may have special conditions attached that stipulate that should you lose your job within three months of purchase, you will not be eligible to claim. If you comply with this requirement, then your credit risk will pay the actual amount still owing on a regular basis (had regular payment been made on every instalment date) from the date that the customer lost his job.

Claim amount

Adverse information

Special conditions

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Exclusions

Exclusions on the above claims would include items such as the following:          Any overdue portion on agreement Resignation Voluntary retrenchment Where the insured had prior knowledge before signing the agreement that he would be retrenched Where the insured had received written or verbal warnings at work and was the subject of a prior disciplinary procedure As a result of an accident, illness, sickness, or disease resulting from the excessive use of alcohol or drugs Where the insured intentionally injured himselfself and became incapacitated War, riot, civil commotion, and such risks Legal liability of any description whatsoever

Automatic suspension of cover

This is where cover is suspended or withheld for the period between the date of notification of the claim until the claim is actually paid out, at which time the cover may be cancelled or suspended, depending on the nature of the claim. For example, if it is a disability claim and the settlement amount of the finance is repaid, the cover will be cancelled, as the account will no longer exist. If it is an unemployment claim, then the claim will pay for the finance premiums monthly until the insured returns to work, at which time the cover will be reinstated, and payments will resume as normal. Automatic suspension of cover could also refer to the fact that the insured has ceased payments to the credit risk insurance. In other words, should no payments for insurance be received, the insured is not covered in the eventualities (such as unemployment and disability) as outlined in the policy document.

1.3

Recording policy information on worksheets (AC3)
The information needed for a worksheet depends on the insurer and the item actually being financed. For example, if the insured bought a car, there would be information regarding the car such as make, model, age, etc. If the credit were used for furniture, details relating to the furniture would be present.

Sample of worksheet

The following is a sample of what a worksheet would look like; however, each organisation will have its own version, with its own requirements.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

WORKSHEET INSURED’S DETAILS NAME: ADDRESS: TELEPHONE HOME: TELEPHONE WORK: IDENTITY NUMBER: _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________ _______________________________________________

SELLER’S DETAILS COMPANY NAME: ADDRESS: TELEPHONE: _______________________________________________ _______________________________________________ _______________________________________________

CONTRACT DETAILS DESCRIPTION OF GOODS: INVOICE NUMBER: INCEPTION DATE: ________________________________________________ ________________________________________________ ________________________________________________

PURCHASE PRICE: PURCHASE DATE: PAYMENTS RECEIVED: AMOUNT OUTSTANDING: SETTLEMENT AMOUNT: POLICY NUMBER: TERM OF CREDIT: RESIDUAL VALUE (if appl.): SPECIAL CONDITIONS: PREMIUM AMOUNT: INSURED AMOUNT:

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

1.4
What are legal fees?

Clearing the suspense account (AC4)
Legal fees are fees that are payable for the use of attorneys or lawyers. These fees usually arise when the insured defaults on payments and the matter is passed to attorneys for resolution. Costs would include items such as communications, correspondence, summonses, and time taken by the lawyers to resolve the situation. Excerpt from a contract regarding costs “The Buyer agrees to be liable for the cost related to preparing this agreement (processing fee) and the cost arising from his or her failure to comply with any terms of this agreement, and/or any default on his or her part, on an attorney and client basis, and for the payment of collection commission on all payments made by him or her if the matter is referred to an attorney.” This basically means that the customer is liable to pay for any legal costs that may arise during the life of the agreement.

What are salvages?

Salvages generally refer to bad debt that has been recovered. It is possible that payments could be made after a claim or settlement payout. For example, goods could be repossessed and then resold as used items. The proceeds from this sale would be considered salvages, which can then be written off against bad debt. The purpose of a suspense account is to accumulate monies received or paid, until the correct allocation of the funds can be processed. Any miscellaneous funds that are received are also placed in the suspense account until they are also allocated. Once allocated, they are moved from the suspense account to the correct place. The suspense account may also be used to transfer monies from the account to pay the actual claim.

What is a suspense account?

Example DR Item Legal costs Defaulted premiums Interest charged Total Credit balance allocated to claim Total Amount R850 R2 600 R520 R3 970 R1 230 0 CR Item Salvages Premiums received Total Total Amount R2 600 R2 600 R5 200 0

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Case study

In the above example, the insured was claiming on the contract, but he was behind in his instalments. Credit risk would not pay out if the instalments were behind; therefore, the insured had to repay the arrears prior to claiming. Interest had already accrued on the late payments, and legal costs were incurred as well. The insured could no longer afford to pay the R1 300 per month; so he returned some of the furniture to the store to offset his balance owing – this accounts for the salvages. In this instance, salvages were for furniture that had been returned to the store due to non-payment. Therefore, the store accepted the return of the goods. These are the premiums that were due on the contract that had not been received. Eventually, they were paid months late. These are the charges allocated by the legal team for recovering funds. This is the amount of money that was charged as interest on late payments. Complete the following self-test. It can be typed or written out. There are answers provided at the end of this study guide. Compare your answers with those provided.

Salvages

Premiums received / defaulted premiums Legal costs Interest charged

Self-test 1

1. 2. 3. 4. 5.

What information usually appears on a customer statement? Explain the function of a reconciliation. What information is needed when doing a reconciliation? What information is captured on a worksheet? Explain the following in your own words: a. b. c. Legal fees Salvages Suspense account

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Competency Competency check and progress indication I can analyse customer statements, organise the information on a reconciliation sheet, and balance it to the statement amount. I can analyse reconciliation sheets to determine trading history, the capital amount claimed, the claim amount, adverse information, special conditions, and automatic suspension of cover. I can record policy information on worksheets. I can explain how to clear a suspense account by determining the legal fees paid and salvages received and know how to allocate the amount to the claim.

Check

SO1 AC1

   

AC2

AC3

AC4

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

UNIT 2
Interpreting and applying a policy document (SO2)
After completing Unit 2, you should be able to do the following: Outcomes for this unit  Analyse and use the terms and conditions of a policy document to establish whether the insurer is at risk, based on the reconciliation. Calculate a claim based on the policy document, reconciliation, special conditions, and other evidence from the date of notification.



Study the material for each sub-unit before moving on to the activities.

2.1
Introduction

Analysing the terms and conditions of a policy document (AC1)
Each policy document has terms and conditions. Unless these terms and conditions are met, no claim will be valid under the contract. The following are some of the most important aspects mentioned in the terms and conditions, but do not represent a complete listing. Death benefit This benefit pays the settlement figure of the finance in the event of death. The amount paid under this benefit will not exceed the maximum sum assured covered. This benefit pays the settlement figure of the finance in the event of permanent disability. Permanent disability means that the insured will not be able to continue to do his own job or a similar job due to his disability. This benefit pays the monthly instalment for the credit agreement if the insured is temporarily disabled due to illness or bodily injury. The payment is made 30 days after notification. This benefit pays the settlement figure of the finance in the event of the insured incurring one of a list of certain conditions, such as heart attack, cancer, stroke, blindness, major burns, or loss of a limb.

Lump sum total and permanent disability benefit

Temporary total disability benefit

Personal catastrophe benefit

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Continuation of cover

If the credit agreement is paid in full prior to the agreed expiry date, the policy will continue for the balance of the unexpired term. The benefits will be calculated by the actuary in the event of a claim. These are the specific requirements that the insurer has with regard to the insured. For example, the policy is only valid up to age 65 and is only valid until the expiry date of the credit agreement. This also lists the exclusions on the policy such as        self-inflicted injuries, suicide within the first two years of the contract, pre-existing conditions, nuclear activity or poison, refusing medical treatment, war or conflict and terrorist activities, and use of drugs or alcohol.

Specific requirements on liability

Premium computation

This is in the event that the premiums paid to the insurer are incorrectly calculated and are insufficient to pay for the benefits stipulated previously. It means that the insurer can change the premium of the policy if he realises that he has made a mistake. If the credit agreement is settled early, the insured is allowed to surrender this contract, and the value is calculated by an actuary. Should any arrangements be made between the insured and the creditor to reduce instalments, the insurer shall not be affected and shall not reduce his instalments. This stipulates that the insured and creditor must submit any proof required by the insurer should a claim arise. Written notification must be received within the agreed-upon period. This stipulates that the insurer may request that the insured undergo medical examination (at the insurer’s cost) should he so require it.

Surrender value

Cessation of cover

Claims

Examination

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Condition precedent Assignment

This stipulates that the insured and the creditor must comply with all provisions stated in the policy document. This stipulates that the insured is not able to cede this policy to anyone other than the creditor. This stipulates that no waiver of any terms or conditions shall be valid unless made in writing and signed by an authorised officer of the insurer.

Waiver of conditions

Reconciliation

In conjunction with the above, there is certain information that must be checked on the reconciliation. The reason for this check is to ensure that the insurer is not at risk of paying out an invalid claim, whether it be the claim amount, reason for claim, violation of terms and conditions, fraud, etc. It is also there to ensure that no errors have been made in the claims process, such as incorrect details being loaded, incorrect claim amounts being transferred to incorrect bank accounts, etc. The following information must be checked:         That the policy is paid to date Previous claims history Trading history Premium amounts received Inception date Exclusions and special conditions Accuracy of all policy details Reason and proof of claim

2.2
Introduction

Calculating a claim (AC2)
In the event of a claim being lodged, there are several criteria that need to be checked to determine the claim calculation. The following information in the policy document needs to be clarified:      That the person claiming is the policyholder The status of the policy (in force, lapsed) That the goods claimed for are actually covered How much cover is insured (for example, 100% of settlement figure or part thereof) Whether the claim should pay the settlement figure or only a certain period of time

Policy document

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Special conditions

The claim must be checked against any exclusions, for example, that the claim is not due to a voluntary retrenchment. The conditions for claiming must be met; for example, the claimant must have been employed for at least three months prior to claiming for job loss insurance.

Reconciliation

Check that the premiums are paid to date and that there is no overdue portion of the agreement. Check what the outstanding capital amount is. Initiate automatic suspension of cover. Determine trading history to ensure that the insured is not a habitual claimant (someone who claims on a regular basis could be an indication of fraudulent or criminal activities).

Evidence received

Check that a copy of the insured’s identity document has been submitted. Check that the claim request documentation has been completely and accurately completed. Ensure that any other necessary evidence is attached to the claim, such as a notification from the insured’s employer verifying that he has, in fact, been retrenched or doctor’s reports verifying medical condition. Complete the following self-test. It can be typed or written out. There are answers provided at the end of this study guide. Compare your answers with those provided.

Self-test 2

Mr Adams has credit risk insurance on his car finance (the car repayment is R1 000 per month, with an extra R60 for credit risk insurance). He is a forklift driver in a warehouse. He injures his back playing rugby during the weekend and has to stay off work for at least two months. His employer has confirmed that it will not be paying him sick leave, as he has utilised his full allocation for the year, so Mr Adams decides to lodge a claim with his insurer. Due to the fact that he does not receive any reply from them within five working days, he escalates the matter to a senior manager in the insurance company. The insurance company then requests medical evidence confirming his condition, which he submits. 1. Under what conditions will the insurer NOT pay the above claim according to the terms and conditions of a contract? 2. If the claim were to be paid, calculate how much would be paid and when cover would commence.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Competency Competency check and progress indication I can analyse and use the terms and conditions of a policy document to establish whether the insurer is at risk, based on the reconciliation. I can calculate a claim based on the policy document, reconciliation, special conditions, and other evidence from the date of notification.

Check

SO2



AC1



AC2

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

UNIT 3 Legal aspects that apply to claims assessing (SO3)
After completing this unit, you should be able to do the following: Outcomes for this unit      Collate and check documents to confirm an entity in order to ensure that payment is made on the correct legal entity. Explain the concept of suretyship, with examples. Explain the concept of general notarial bonds as it applies to special conditions. Explain the concept of cession, and give an indication of the documents required to prove cession. Explain the concept of cross-company guarantees, with examples.

Study the material for each sub-unit before moving on to the activities.

3.1
Why are documents needed?

Collating and checking documents to confirm an entity (AC1)
In the insurance industry, there is a lot of fraudulent activity, especially in the claims divisions. Therefore, as much care as possible needs to be taken by all insurance companies to ensure that the person who receives the funds is, indeed, the policyholder or claimant. There is a variety of documents that are needed or could be requested to confirm that an individual is who he says he is.        Identity book or copy thereof Amenities bill such as water and lights or rates Marriage certificate Birth certificate Antenuptial contract if applicable Cancelled cheque Letter from bank confirming account details

Documents required to confirm an individual

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Documents required to confirm a company

If the claimant is a company, there are a few documents that could be requested to confirm this:       A partnership agreement (if the company is a partnership) A founding statement (if a close corporation) Statements on letterheads Statements from auditors or company accountants Cancelled cheque Letter from bank confirming account details

3.2
What is surety?

Suretyship (AC2)
Surety is security given as a guarantee of payment of a debt. People can stand surety for each other, which means that should the credit company not receive their monies from the insured, they can request them from the person who stood surety, as he is also liable for the debt. Should you wish to take out finance or credit for a particular purchase, but you do not have enough assets to use as collateral, you can ask someone to stand surety for you. If you do not have enough assets to cover the amount you are borrowing, it is unlikely that a financial institution will offer you finance or credit, but this obviously depends on the amount being borrowed. This person would then take joint responsibility for repaying the loan, finance, or credit should you default on payments. Example 1 Mary is 19, is leaving home to set up a flat, and has just started her first job. She wants to furnish her whole flat from one particular furniture store. Her total credit requested is R50 000. As she has no previous credit history and has no collateral, the store asks for surety. Her parents, who own their own property and have steady jobs and a good, clear, and established credit history, agree to stand as surety to ensure that she gets the credit. Example 2 John is middle-aged and owns his own business. For various reasons, his business closes down, and he is forced to file for bankruptcy. He sells all his possessions to pay off the debt. However, his name is listed with the credit bureau. A few months later, John finds employment and wants to purchase a vehicle.

Why the need for surety?

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

As his name is on the credit bureau listing, the finance company may decline his application or, alternatively, ask for surety. He could ask a family member or close friend who has a clear credit history to stand surety for him. Example of a deed of suretyship I, ____________________________ (full name), the undersigned, ID number __________________________ of _____________________ (street address), hereby bind myself as surety and Co-Principal Debtor unto the Creditor for the due and punctual payment of all amounts and sums of money that may now or at any time hereafter be or become due, and for the due fulfilment of all the obligations that may now or at any time hereafter be or become due by the Principal Debtor, and in respect of which my liability as surety shall be limited to R__________ (amount to be guaranteed). Should the Principal Debtor fail to discharge any of his or obligations on the due date, the Creditor may demand from immediate payment of all the obligations then owing by Principal Debtor to the Creditor, whether the due date of payment of the obligations shall have arrived or not. her me the the

In terms of section 45 of the Magistrate’s Court Act No 32 of 1994, I consent to the jurisdiction of the Magistrate’s Court in respect of any legal proceedings that may arise from this deed of suretyship, regardless of the amount involved. It is agreed that the address mentioned above my name shall be the place to which all and any post, notices, or other communication are to be sent to me, and it is further agreed that such communication be binding on me. This is the entire suretyship agreement, and no changes may be made to it unless these changes are in writing and signed by me and the Creditor. Signed at ________________ this ____ day of __________ 20___. As witnesses 1. _______________________ Name ______________________ 2. _______________________ Name ______________________

3.3
What is a notarial bond?

General notarial bonds (AC3)
A notarial bond is something that may be taken by a creditor to secure his position should the debtor experience financial difficulties (it makes provision that the creditor may attempt to recoup some of his money). Notarial bonds may only be granted on movable assets, as opposed to immovable assets.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

What is a moveable asset? What is an immovable asset? How can a notarial bond be “perfected”?

A moveable asset is an asset that may be conveniently transferred from one location to another, for example, small machinery, furniture, or computer equipment. An immovable asset is an asset that would be classified as a fixture and cannot be moved. “Perfected” is the term used for notarial bonds for the right to foreclose on the debt; in other words, the right to call in the debt. There are two ways of perfecting a notarial bond:   By gaining prior consent from the debtor By means of a court order

Consent of debtor

This is where the creditor receives consent from the debtor to perfect the notarial bond. This can sometimes lead to problems because if the debtor is insolvent and the creditor perfects the notarial bond, it can be seen as a voidable preference. If it is seen as a voidable preference, the creditor may be at risk of not having a real right over the asset or proceeds thereof.

What is a voidable preference?

Section 29 of the Insolvency Act discusses voidable preference. This is the favouring of one creditor above the other. In other words, Creditor A is owed R100 000, and Creditor B is owed R200 000. As a business owner going insolvent, you wish to sell goods or equipment and give the proceeds to a creditor. You make R100 000 and decide to pay off Creditor A, rather than only paying off half of what is owed to Creditor B and still owing two creditors in total. This act is called voidable preference, unless you can prove that you sold your equipment more than six months prior to your liquidation, in the normal course of business, and that you did not intend to favour one creditor above another.

Court order

This is the easier way of perfecting notarial bonds. Notarial bonds are normally perfected as a matter of great urgency, so a court order is preferable, even though there will be court costs incurred in the process. These costs are usually the reason why creditors will attempt to perfect the notarial bond by means of gaining the debtor’s consent.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

General



It is also possible for several creditors to have notarial bonds with one debtor. The “safest” creditor is the one who perfected the notarial bond first. A perfection clause in a general notarial bond is an agreement to constitute a pledge that allows the creditor to take possession of the moveable assets. Agreement to constitute a pledge is not a “real” right. The taking of possession establishes the real right. When the creditor perfects the security under the general notarial bond, he obtains a real right of security.



 

3.4
What is a cession?

Cession (AC4)
The dictionary definition of “cede” is the following: “to yield to another, give up, especially by treaty; to assign or transfer the title of”. A cession, then, is the act of transferring the title of something to another person or entity. Most cessions are collateral cessions, which implies a temporary transferring of legal rights to another party (usually a company to which you owe money).

Policies as a form of collateral or security

People may cede policies as a form of collateral or security if they cannot get another person to stand as surety on their behalf. Should you have a policy that has an investment value equal to or greater than the amount that you wish to borrow, you can cede it to the finance company. This means that for the period that you are paying off the loan, your policy belongs to the finance company. Should you default on payment in that time, the financial institution may cash in your policy or surrender it to cover their losses. When you have repaid your entire debt to the finance company, the cession is cancelled, and you again become the legal owner of the policy.

Example of excerpt from credit agreement

“The Buyer may not transfer his or her rights and obligations under this agreement to any other party without obtaining the Seller’s prior written approval, but it is agreed that the Seller can transfer its rights under the agreement and its ownership in the goods to another party. The Buyer agrees that if the Seller does transfer its rights, the Buyer will continue to hold the goods and fulfil his or her obligations on behalf of and to the new party.”    Signed cession form Original policy document Certified copy of identity book

Documents required

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

3.5
Crosscompany guarantees

Cross-company guarantees (AC5)
This is a similar concept to suretyship, in that another party takes responsibility on your behalf for a debt incurred. As the term suggests, this occurs between two companies or institutions, as opposed to individuals; for example, the finance house would have a cross-company guarantee with an insurance company. The guarantee would state that should the finance company pay over the client’s (buyer’s) premium, either annually, monthly, or as a lump sum, the insurance company guarantees cover of the finance company’s debt should the client claim or default on payment. This is used to protect the finance company against being crippled by bad debt and obviously hinges on all terms and conditions being met and premiums being paid. There is generally one agreement or guarantee between the finance company and the insurance company to cover all transactions and contracts entered into, with monthly updates showing details such as capital paid out, payments received, and premiums paid to the insurer.

Examples of finance companies

   

FirstFurn MVF (Motor Vehicle Financing) Stannic Wesbank Auto & General Santam SA Eagle

Examples of insurers of credit risk

  

Complete the following self-test. It can be typed or written out. There are answers provided at the end of this study guide. Compare your answers with those provided. Self-test 3 1. Which documents are required to confirm an individual? 2. Which documents are required to confirm a company? 3. Describe, in a sentence, what surety is. 4. Describe the concept of a notarial bond. 5. What is a moveable asset? 6. What is a cession? 7. Which documents are required for a valid cession? 8. What is a cross-company guarantee?

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Competency Competency check and progress indication I can collate and check documents to confirm an entity in order to ensure that payment is made on the correct legal entity. I can explain the concept of suretyship, with examples. I can explain the concept of general notarial bonds as it applies to special conditions. I can explain the concept of cession and give an indication of the documents required to prove cession. I can explain the concept of cross-company guarantees, with examples.

Check

SO3

    

AC1

AC2 AC3

AC4

AC5

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

UNIT 4
Processing a claim (SO4)
After completing Unit 4, you should be able to do the following: Outcomes for this unit   Load relevant information from the assessment on a claims system for processing. Check a processed claim for accuracy, and refer it for authorisation.

Study the material for each sub-unit before moving on to the activities.

4.1
Claims systems

Processing a claim (AC1)
Each insurance organisation will have its own claims system. However, the majority of information on that system needed to process the actual claim will be very similar. The system will have built-in checks that it will perform based on the information that is captured, such as the following:        The term of the policy must be valid. Ensure that the goods claimed against are the actual goods insured by checking serial numbers, make, features, etc. Ensure that premiums are paid to date. Check the value of the claim compared to the sum insured. Check for any special conditions and/or exclusions to ensure that these do not invalidate the claim. Check identity numbers and copy of ID. In the case of theft, check whether the SAP case number is correct; if no case number is required, a detailed statement is required with a sworn affidavit and/or service record indicating breakages and problems. There must be a letter from the employer confirming retrenchment or redundancy or loss of remuneration. Ensure that the claim is signed by all necessary parties.

  Information to be loaded

The following information is generally required for a record to be added to the claims system:    Policy number Payee details Personal details such as name, address, ID number

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

        

Details of item claiming for Premium Sum insured Assessor’s comments Assessor’s decision (authorise/decline) Reason for claim Amount to be paid out Date of notification of claim Date of payment made

4.2
Why are claims checked?

Checking a processed claim (AC2)
For security and auditing purposes, different people must be involved in the processing, checking, and authorising of claims. Generally, there would be a claims clerk to process, a supervisor or leader to check, and a manager or other supervisor to authorise or decline. All documentation for processing of the claim should be kept together and put in a file or folder. The following examples of documentation will be present: 1. Claim form 2. Copy of identity book 3. Policy schedule 4. Affidavit and/or SAPS case number OR 5. Evidence of loss or income OR 6. Evidence of damage to goods 7. Latest customer statement or policy print 8. Reconciliation of account 9. Bank details where claim must be credited to 10. Proof of banking account 11. Settlement amount 12. Claim amount to be paid 13. Any relevant workflow prints 14. 14. Signatures and comments from assessors Complete the following self-test. It can be typed or written out. There are answers provided at the end of this study guide. Compare your answers with those provided.

Documentation required

Self-test 4

1. Which elements will your system ordinarily check?

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

2. What information is generally required for a record to be added to the claims system? 3. When checking a processed claim, what documentation will ordinarily be present? Competency Competency check and progress indication I can load relevant information from the assessment on a claims system for processing. I can check a processed claim for accuracy and refer it for authorisation. Check SO3 AC1 AC2

 

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Answers to self-tests
Compare these answers to your answers. 1. Including, but not limited to, the following: Self-test 1 a. Sum insured – this is the amount of the finance taken for the goods bought, for example, a vehicle or store accounts for furniture or clothing, etc. Monthly premium credit risk – this is how much the credit risk premium is costing the customer on a monthly basis. Monthly repayment – this is the capital and interest amount of how much the customer is paying on a monthly basis for his finance, excluding the premium for credit risk. Monthly repayment total – this is the total monthly repayment that is being paid by the customer, including credit risk, capital, and interest. Repaid in total – this is the amount that the customer has repaid in total on his account. Credit risk premiums total – this is the total amount of premiums that have been paid for credit risk only. Capital paid total – this is how much capital has been repaid in total by the customer. Interest paid total – this is how much interest has been repaid in total by the customer.

b.

c.

d.

e. f. g. h. 2. 3.

A reconciliation is a way of checking that the account balances and that the figures quoted are correct. Including, but not limited to, the following: a. b. c. d. e. Sum insured Payments made on capital to date Payments made on interest to date Payments made on credit risk to date Payment poss. claim

4.

Including, but not limited to, the following: - Insured’s details     Name Address Telephone home Telephone work

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

                  5.

Identity number

- Seller’s details Company name Address Telephone

- Contract details Description of goods Invoice number Inception date Purchase price Purchase date Payments received Amount outstanding Settlement amount Policy number Term of credit Residual value (if appl.) Special conditions Premium amount Insured amount

a. Legal fees – legal fees are fees that are payable for the use of attorneys or lawyers. These fees usually arise when the insured defaults on payments and the matter is passed to attorneys for resolution. Costs would include items such as communications, correspondence, summonses, and time taken by the lawyers to resolve the situation. b. Salvages – salvages generally refer to bad debt that has been recovered. It is possible that payments could be made after a claim or settlement payout. For example, goods could be repossessed and then resold as used items. The proceeds from this sale would be considered salvages, which can then be written off against bad debt. c. Suspense account – the purpose of a suspense account is to accumulate monies received or paid, until the correct allocation of the funds can be processed. Any miscellaneous funds that are received are also placed in the suspense account until they are also allocated. Once allocated, they are moved from the suspense account to the correct place.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

The suspense account may also be used to transfer monies from the account to pay the actual claim. Compare these answers to your answers. Self-test 2 1. Non-disclosure of his back condition; non-payment of insurance premiums. 2. The claim amount would be the same as the finance (R1 000), as the cover was taken to pay the instalments and would commence 30-45 days after notification of claim (depending on the product and the insurer). Compare these answers to your answers. 1. Self-test 3 There is a variety of documents that are needed or could be requested to confirm that an individual is who he says he is. a. b. c. d. e. f. g. 2. Identity book or copy thereof Amenities bill such as water and lights or rates Marriage certificate Birth certificate Antenuptial contract if applicable Cancelled cheque Letter from bank confirming account details

If the claimant is a company, there are a few documents that could be requested to confirm this: a. b. c. d. e. f. A partnership agreement (if the company is a partnership) A founding statement (if a close corporation) Statements on letterheads Statements from auditors or company accountants Cancelled cheque Letter from bank confirming account details

3. 4.

Surety is security given as a guarantee of payment of a debt. A notarial bond is something that may be taken by a creditor to secure his position should the debtor experience financial difficulties (it makes provision that the creditor may attempt to recoup some of his money). Notarial bonds may only be granted on movable assets, as opposed to immovable assets. A moveable asset is an asset that may be conveniently transferred from one location to another, for example, small machinery, furniture, or computer equipment.

5.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

6.

A cession is the act of transferring the title of something to another person or entity. Most cessions are collateral cessions, which implies a temporary transferring of legal rights to another party (usually a company to which you owe money). a. b. c. Signed cession form Original policy document Certified copy of identity book

7.

8. This is a similar concept to suretyship, in that another party takes responsibility on your behalf for a debt incurred. As the term suggests, this occurs between two companies or institutions, as opposed to individuals; for example, the finance house would have a cross-company guarantee with an insurance company. The guarantee would state that should the finance company pay over the client’s (buyer’s) premium, either annually, monthly, or as a lump sum, the insurance company guarantees cover of the finance company’s debt should the client claim or default on payment. Compare these answers to your answers. 1. Self-test 4 Including, but not limited to, the following: a. b. The term of the policy must be valid. Ensure that the goods claimed against are the actual goods insured by checking serial numbers, make, features, etc. Ensure that premiums are paid to date. Check the value of the claim compared to the sum insured. Check for any special conditions and/or exclusions to ensure that these do not invalidate the claim. Check identity numbers and copy of ID. In the case of theft, check whether the SAP case number is correct; if no case number is required, a detailed statement is required with a sworn affidavit and/or service record indicating breakages and problems. There must be a letter from the employer confirming retrenchment or redundancy or loss of remuneration. Ensure that the claim is signed by all necessary parties. Policy number Payee details

c. d. e. f. g.

h. i. 2. a. b.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

c. d. e. f. g. h. i. j. k. l. 3. a. b. c. d. e. f. g. h. i. j. k. l. m. n.

Personal details such as name, address, ID number Details of item claiming for Premium Sum insured Assessor’s comments Assessor’s decision (authorise/decline) Reason for claim Amount to be paid out Date of notification of claim Date of payment made Claim form Copy of identity book Policy schedule Affidavit and/or SAPS case number OR Evidence of loss or income OR Evidence of damage to goods Latest customer statement or policy print Reconciliation of account Bank details where claim must be credited to Proof of banking account Settlement amount Claim amount to be paid Any relevant workflow prints Signatures and comments from assessors

Including, but not limited to, the following:

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

Addendum 1
All qualifications and unit standards registered on the National Qualifications Framework are public property. Thus the only payment that can be made for them is for service and reproduction. It is illegal to sell this material for profit. If the material is reproduced or quoted, the South African Qualifications Authority (SAQA) should be acknowledged as the source. SOUTH AFRICAN QUALIFICATIONS AUTHORITY REGISTERED UNIT STANDARD: Process a claim in credit risk insurance SAQA US ID 14978 SGB NAME SGB Financial Services FIELD DESCRIPTION Business, Commerce and Management Studies UNIT STANDARD CODE BUS-FEA-0-SGB FinS REGISTRATION START DATE 2003-10-08 UNIT STANDARD TYPE Regular REGISTRATION END DATE 2006-10-08 UNIT STANDARD TITLE Process a claim in credit risk insurance ABET BAND Undefined PROVIDER NAME

SUBFIELD DESCRIPTION Finance, Economics and Accounting NQF LEVEL Level 4 REGISTRATION NUMBER 14978 CREDITS 4 SAQA DECISION NUMBER SAQA 0150/03

PURPOSE OF THE UNIT STANDARD This Unit Standard is intended for learners who work in the field of credit insurance. The qualifying learner is capable of:     Reconciling a customer statement. Interpreting and applying a policy document. Understanding legal aspects that apply to claims assessing. Processing a claim.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

LEARNING ASSUMED TO BE IN PLACE There is open access to this Unit Standard. Learners should be competent in Communication and Mathematical and Financial Literacy at NQF Level 3. UNIT STANDARD RANGE The typical scope of this Unit Standard is:  Adverse information includes, but is not limited to RD cheques and automatic suspension of cover.  Relevant policy information includes, but is not limited to, buyer information, date of credit limit, amount of credit limit, special conditions, limit of discretion, money in suspense, terms granted, date of notification, special endorsements, goods delivered, the basis for entertaining the claim and reasons for defaulting.  A legal entity is a sole proprietary, partnership, closed corporation, private company (Pty), public company (Ltd), trust and incorporated. Documents required to confirm legal status include, but are not limited to, credit application, ITC report, invoices and bank reports. UNIT STANDARD OUTCOME HEADER N/A Specific Outcomes and Assessment Criteria: SPECIFIC OUTCOME 1 Reconcile a customer statement. ASSESSMENT CRITERIA ASSESSMENT CRITERION 1 1. A customer statement is analysed and the information is organised on a reconciliation sheet and balanced to the statement amount. ASSESSMENT CRITERION 2 2. The reconciliation is analysed to determine trading history, the capital amount claimed, the claim amount, adverse information, special conditions and automatic suspension of cover. ASSESSMENT CRITERION 3 3. Relevant policy information is recorder on the worksheet.

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

ASSESSMENT CRITERION 4 4. The legal fees paid and salvages received are determined in order to clear the suspense account and the amount is allocated to the claim. SPECIFIC OUTCOME 2 Interpret and apply a policy document. ASSESSMENT CRITERIA ASSESSMENT CRITERION 1 1. The terms and conditions of a policy document are analysed and used to establish whether the insurer is on risk, based on the reconciliation. ASSESSMENT CRITERION 2 2. A claim is calculated based on the policy document, reconciliation, special conditions and other evidence from the date of notification. SPECIFIC OUTCOME 3 Demonstrate knowledge and understanding of legal aspects that apply to claims assessing. ASSESSMENT CRITERIA ASSESSMENT CRITERION 1 1. Documents required to confirm an entity are collated and checked in order to ensure payment is made on the correct legal entity. ASSESSMENT CRITERION 2 2. The concept of a suretyship is explained with examples. ASSESSMENT CRITERION 3 3. The concept of general notarial bonds is explained as it applies to special conditions. ASSESSMENT CRITERION 4 4. The concept of cession is explained and an indication is given of the documents required to prove cession. ASSESSMENT CRITERION 5 5. The concept of cross company guarantees is explained with examples. SPECIFIC OUTCOME 4 Process a claim. ASSESSMENT CRITERIA ASSESSMENT CRITERION 1

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

1. Relevant information from the assessment is loaded on a claims system to process a claim. ASSESSMENT CRITERION 2 2. The processed claim is checked for accuracy and referred for authorisation. UNIT STANDARD ACCREDITATION AND MODERATION OPTIONS Accreditation for this Unit Standard shall be obtained from the relevant Education and Training Quality Assurance Body, through summative and formative assessment by a registered assessor.    Assessors must be registered as an Assessor with the INSQA or with an ETQA that has a Memorandum of Understanding with the INSQA. Moderators must be registered as assessors with INSQA, or with an ETQA that has a Memorandum of Agreement with INSQA. Training providers must be accredited by the relevant ETQA.

Moderation should include both internal and external moderation where applicable. UNIT STANDARD ESSENTIAL EMBEDDED KNOWLEDGE N/A UNIT STANDARD DEVELOPMENTAL OUTCOME N/A UNIT STANDARD LINKAGES N/A Critical Cross-field Outcomes (CCFO):

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Unit Standard SAQA 14978 – Process a claim in credit risk insurance

UNIT STANDARD CCFO IDENTIFYING Learners are able to identify and solve problems in which responses show that responsible decisions using critical thinking have been made in assessing a claim. UNIT STANDARD CCFO COLLECTING Learners are able to collect, organise and critically evaluate information in assessing and processing a claim. UNIT STANDARD CCFO SCIENCE Learners are able to use technology effectively in assessing a claim. UNIT STANDARD CCFO DEMONSTRATING Learners are able to see the world as a set of related systems in understanding the effect of adverse information on a claim and the relationship between the factors considered in reconciling a customer statement. UNIT STANDARD ASSESSOR CRITERIA N/A UNIT STANDARD NOTES N/A

All qualifications and unit standards registered on the National Qualifications Framework are public property. Thus the only payment that can be made for them is for service and reproduction. It is illegal to sell this material for profit. If the material is reproduced or quoted, the South African Qualifications Authority (SAQA) should be acknowledged as the source.

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