Insurance Act changes released for public comment
During the State of the Nation address in January, President Cyril Ramaphosa finally ended years of speculation when he announced that Twin Peaks will come into effect on 1 April.
In line with this, the Financial Services Board (FSB) now Financial Sector Conduct Authority (FSCA) has been releasing documents for public comment, through the Government Gazette in the hope that the highest level of public consultation is reached.
Two key documents that are being amended in order to be aligned with the Insurance act is the Short Term Insurance Act (STIA) and the Long Term Insurance Act (LTIA).
Key collectors
One of the things that the FSB hopes to change is the authorisation of and requirements for collection of premiums by intermediaries.
According to the document presented in the Government Gazette (23 March), any authorisation referred to in section 45 of the STIA provided by an insurer to an independent intermediary to receive, hold or in any other manner deal with a premium payable under a policy of that insurer must be in writing, and must deal with certain issues.
These include:
- specify the duration of the authorisation and the functions that may be performed under the authorisation;
- specify the commission payable by the insurer to the independent intermediary for the services rendered under the authorisation;
- specify the level and standard of services that must be rendered;
- specify the operational requirements that the independent intermediary must meet at all times to render services under the authorisation; and
- provide for the type and frequency of reporting by the independent intermediary on the services rendered under the authorisation.
The document in the Gazette adds that an insurer may not authorise more than one independent intermediary to receive, hold or in any other manner deal with a premium in relation to the same policy if it is a policy forming part of personal lines business. Further, an insurer must on an ongoing basis monitor whether an independent intermediary authorised under section 45 receives, holds or in any other manner deals with premiums in accordance with the authorisation.
The area of concern
Remuneration has been a major concern with the FSB signalling its intent to take a very regulated view when it comes to commissions.
We are aware of the thoughts of the FSB when it comes commission and a specific line of business. But what happens to those who write multiple lines of business?
The document in the Gazette points out that if a policy is a contract comprising a combination of any two or more of the short term policies defined in section 1 of the STIA, the maximum commission payable shall be determined by aggregating the maximum payable in terms of this Part.
In respect of each of the separate kinds of policies comprising the combination by reference to the premium payable for each such policy; if the premium attributable to each component is not specified in or ascertainable from the policy, the maximum shall not exceed that which would have been payable had the policy been the kind of policy to which the lowest maximum rate of commission applies.
Stated purpose
According to the FSB, the Insurance Act provides for the prudential legislative framework for insurers. The commencement date of the Insurance Act is still to be determined by the Minister.
The FSB says that it hopes that the necessary consultation process will be completed in time so that commencement of the Insurance Act can be 1 July 2018.
The Insurance Act repeals all prudential requirements that are currently provided for in the LTIA and STIA. However, it provides for a two-year transition period for insurers to migrate from the existing to new framework.
In addition, non-prudential sections in the LTIA and STIA will remain in force in parallel to the new prudential requirements. This is done to provide an interim conduct of business legal framework for insurers pending implementation of the envisaged Conduct of Financial Institutions Act which is still in the drafting phase.
The FSB says that, over this transition period, it is important that insurers are subject to equivalent regulatory requirements for market conduct across the existing and new frameworks in order to promote regulatory certainty for regulated entities.
It is also being done to ensure a level regulatory playing field across the two frameworks to mitigate the risk of regulatory arbitrage. Regulated entities should not be disadvantaged by entering the new framework, relative to those that have not yet migrated across.
Editor’s Thoughts:
Structure is never a bad thing. Its points out what can and can’t be done in an industry that needs to have rules to ensure that clients receive the best advise possible. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
