RBS comments on proposed changes to new short term insurance act

Proposed amendments to the Short Term Insurance Act have been welcomed by financial services group, Risk Benefit Solutions (RBS), as being well-thought out and bringing clarity to the industry.

“The draft that is now released is well thought through and addresses areas where uncertainty previously prevailed, for example, administrators were not certain whether they were classified as brokers or underwriting managers,” RBS CEO Michael Petersen said. “They are now correctly addressed.”

The new draft regulations were released by the Financial Services Board (FSB) for public comment and contain two important changes to the existing act. For the first time there is a concession by the regulator that independent insurance brokers, who had increasingly been doing more administrative work, can earn monies over and above commission for that work.

“This recognizes the additional duties performed by brokers, as well as the associated costs and the necessity of these additional functions adding value to the value chain.” Petersen commented. He noted that the FSB had done a thorough job of consulting with the industry and understanding the vagaries that exist.

According to Petersen the proposed new act also provides clarity to the practice of receiving instructions from clients as, according to the second proposed change, brokers will in future need a written mandate from their client prior to making changes to the client's policy.

This can work to the client’s disadvantage in a situation where a broker wishes to move a book of business to an alternate insurer due to various reasons, one being better service and better products. The amount of administrative work that is now required to be done will discourage the broker from moving the book of business, even though it is in the clients best interests.

Says Petersen: “The draft act does not contain any dramatic detrimental changes to the industry as a whole, but seeks to govern an already broad and complicated industry, more tightly.” “Adaption and change will be required though,” he adds.

Petersen ends off by stating that the proposed new act provides the industry with a clear and unambiguous understanding, which all stakeholders now have a duty to understand and abide by.