Update on cancellation of selected policies by Constantia Insurance Company Ltd

23 March 2020 FSCA

The Financial Sector Conduct Authority (FSCA) has engaged with Constantia Insurance Company Ltd (Constantia) regarding the policy cancellations of the Prime Living Covergrow (Covergrow) and Living Legacy (Legacy) product offerings.

These engagements were aimed at looking at the reasons for the cancellations of these policies, the impact it has had on affected policyholders and finding a way forward that ensures the best customer outcomes.

Recently, the FSCA received complaints from Covergrow and Legacy policyholders that they received correspondence from Constantia – the underwriter and direct administrator for these products since April 2019 – informing them that due to regulatory changes introduced by the Insurance Act, 18 of 2017 (Insurance Act), their policies would be cancelled. Previously these policies were distributed as accident and health policies by an underwriting manager and then marketed by Prime Meridian Direct, an authorised FSP.

When promulgated on 1 July 2018, the Insurance Act triggered certain regulatory changes in the insurance sector. Dealing mostly with prudential aspects of insurance supervision including licensing, the Act saw registered insurers undergo a process of converting their registration in terms of the Short-term Insurance Act (STI Act) to that of a licensed insurer as defined in the Insurance Act conducting non-life business. This also meant insurers would have to relook their product offering on their current licence so that they could be compliant with the Insurance Act. Constantia, as one of the insurers undergoing this process, found during this analysis that:
• They could no longer offer products that featured a combination of what is defined in the Insurance Act as either life and non-life business on one licence.
• Undergo the Prudential Authority’s (PA) current process of converting its registration to a license that can conduct a class and/or sub-class of life insurance business or non-life insurance business as referred to in Schedule 2 of the Insurance Act.
• That they may terminate policies provided that they give policyholder at least 31 days’ written notice of the intended termination, as per Rule 19.2 of the Policyholder Protection Rules issued in terms of the STI Act.

The FSCA received this termination policy notification on 3 March 2020 and immediately held supervisory engagements with Constantia to find alternative and fair options for affected policyholders. During this process, the FSCA can report on the following:
• The FSCA was not made aware (and it could not have been aware) that product offerings and consequently policies would have to be cancelled, as this is not the default position in the licence conversion process.
• After an actuarial analysis was performed to see if it was possible to transfer these policies to the life licence, it was found that the insurer would not have been in a position to offer the product on the exact same terms and conditions it had whilst underwriting it on the short-term licence.
• This assessment also revealed that there would be a significant impact on pricing.
• Discontinuing these product offerings was the best decision as it would not have been reasonable to expect a policyholder to pay a much higher premium.
• The FSCA could not find a basis to direct Constantia to refund premiums received.
• Constantia is on risk and continues accepting any premium until the cancellation of the policy becomes effective.
• Constantia has a legal obligation to honour and pay out valid claims upon receipt of such claims.
• That Constantia should continually communicate with its policyholders and clarify the reasons for the cancellation of these policies as well as any other changes that may impact them.

The FSCA also received assurances from Constantia that there will be no more cancellation of any other of their life products. The FSCA is satisfied that the cancellation of these products was the most viable option and encourages affected policyholders who seek similar cover to engage their financial advisers, where applicable, and to consult the insurance market for alternative offerings.

For our full findings on this matter, please access the document here.


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