South African Insurance Association comments on Demarcation Regulations

05 August 2014 Adv. Suzette Olivier, SAIA

The South African Insurance Association (“SAIA”) has announced that it has made its submission to the National Treasury with regard to the revised second Draft Demarcation Regulations.

The SAIA, an industry body representing sixty member companies in the short-term insurance industry, made its submission following the National Treasury’s release of its revised second draft Demarcation Regulations (“the Regulations”) on 30 April 2014.

The SAIA said it welcomed the inclusion of medical expense shortfall cover (“GAP cover”) as a permissible accident and health policy under the Short-term Insurance Act, but proposed that the R50 000 cap be removed in order not to exclude cover for consumers who may have claims for costly procedures such as joint replacements. Interestingly, the average age of GAP policyholders is 46 years of age.

“The SAIA supports strategic approaches to address the underlying causes of spiralling private healthcare costs to make healthcare more affordable to consumers,” says SAIA’s Adv. Suzette Olivier, General Manager: Legal.

She said that the capping of GAP cover will lead to a massive reduction in cover for consumers but not necessarily to a reduction in premium as policyholders pay a minimal amount for GAP cover in excess of the average cost of claims whilst receiving huge value for little or no additional premium. Olivier added that local and international trends indicate that the annual increase in medical treatment far surpasses that of the Consumer Price Index (“CPI”), hence the annual increase on caps provided in the Regulations were impractical.

The SAIA also expressed concern with the impact of the Regulations on the approximate three million South Africans travelling internationally per year. The Association said the alignment of commission for health insurance and medical schemes will negatively affect the sustainability and distribution of the travel insurance market.

Olivier confirmed that the average international leisure travel policy was around R600 and provided as a once-off, non-renewable policy. The commission proposed in the draft Regulations will reduce the commission from a current commission average of R120 to R18.

The SAIA emphasized that the suggested commission was insufficient considering the cost associated with selling and administrating such products as well as maintaining sufficient professional indemnity insurance.

The SAIA expressed concern that this may lead to negative consumer outcomes such as an increase in the costs of the products or travel policies ceasing to exist.

Olivier noted that travel insurance was invariably sold by travel agents, who as a matter of course, do not sell medical scheme products hence there was a limited risk of intermediaries selling travel insurance instead of offering medical scheme products.

Olivier said the proposed alignment of commission would also drastically reduce commission payable on the average GAP cover policy of R113 from R23 to R3.

The SAIA proposed that the issue of the payment of commission provided for in the Regulations should be deferred to the FSB’s soon to be released Retail Distribution Review, aimed at reviewing the existing framework of advice, distribution and remuneration of insurance products, in support of the Treating Customers Fairly outcomes.

In its submission, the SAIA also made proposals on the HIV and AIDS category provided for in the Regulations which is currently limited to employee groups. The SAIA submitted that this limitation should be removed to permit cover for the unemployed and other groups.

The SAIA also proposed that other categories of critical illness health policies should be considered as permissible in the event that these illnesses are viewed as epidemic in nature and/or have a large financial impact on consumers and on the health care system in support of the National Development Plan.

The SAIA has met with representatives of the National Treasury (“NT”) and the Financial Services Board (“FSB”) on 29 May 2014 on this issue in the interest of a sustainable insurance market that supports fair consumer outcomes.

SAIA Chief Executive, Barry Scott affirmed, “We confirm our appreciation to the National Treasury and the FSB for the opportunity to participate in the process and look forward to further consultations in respect of those areas of concern identified by the SAIA.”

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