Payment of commission and premium relief
The Financial Sector Conduct Authority (FSCA) released communication, relating to the payment of commission to intermediaries to provide context to the intention behind the exemptions. In the communication, the FSCA recognises that the inability to pay premiums as a result of the COVID-19 pandemic will have a negative impact on the income of intermediaries. Many intermediaries fall within the small business category and might be unable to sustain a significant reduction in income.
Short term insurance – premium, commission and claims
The notice received from the FSCA makes it clear that the notice is aimed at facilitating, at the discretion of the insurer, the delivery of premium relief to policyholders without impacting the expected income of intermediaries which they receive through commission.
The exemption includes distinct conditions with which an insurer intending to rely on the exemption must comply. These conditions include a requirement that policy benefits, where premium relief is granted, must not be stopped, reduced or limited. This means that valid claims should be honoured where the claim event occurred during the premium relief period.
It also provides that where commission is paid in respect of a policy that is subject to premium relief, such commission may still be paid at the discretion of the insurer to assist small businesses and not exceed the maximum allowable commission prescribed in Regulation 5.3(1).
No abuse
Furthermore, the Authority included a condition limiting the exemption to policies where the policyholder is in good standing with the insurer (e.g. no outstanding premium). This prevents the insurer or broker from attracting new business by offering premium relief and attempts to avoid the potential abuse of premium relief by policyholders that have tendencies to default on premiums, and who are more likely to use the COVID19 pandemic as an invalid excuse not to pay premiums.
Long term insurance – commission, long-term effect, causal event charges and updating of policies
The exemption notice related to long-term insurance is aimed at facilitating the delivery of premium relief to policyholders by providing for the exemption from immediate adjustment of commission due to a reduction in premium received by the insurer. This exemption notice also aims to prevent the policyholder from being placed in an extended restriction period and/or the policy attracting causal event charges due to the premium relief being accepted.
When it comes to the adjustment of commission, in the event that the premium relief remains unpaid for a period longer than 12 months, the adjustment of commission must be effected.
In terms of the restriction period, the conditions include a requirement to clearly disclose any adverse implications from accepting the premium relief and that no additional causal event charges should be charged flowing from the relief granted.
Policies can also not be updated in an attempt to avoid the potential abuse of premium relief by policyholders who have tendencies to default on premiums, and who may be more likely to use the COVID-19 pandemic as an invalid excuse not to pay premiums due.
A win-win?
The Authority believes that these exemptions will assist insurers to provide premium relief options to affected policyholders while limiting the adverse consequences to the intermediaries by still allowing insurers to pay commission to the intermediaries servicing these policies where they deem it necessary to do so.
Also read the following Notices in relation to the above communication.
FSCA INS Notice 6 of 2020
Writer’s Thoughts:
The FSCA has set up a separate category on their website with everything related to COVID-19 https://www.fsca.co.za/Pages/covid-19-industry-communication.aspx so make sure you visit the page regularly for any updates. In the interim, we will make sure you stay updated of the latest developments. I am keen to know if this latest communication makes you less worried, in any way. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts editor@fanews.co.za.
