What to consider when transferring a book of business

There are many reasons why a broker may consider transferring a book of business: an insurer may not be able to continue to financially support the book; the insurer may not be providing the level of support required by the clients or the underwriting manager may decide to change underwriters. Whatever the reason, it is advisable that the broker bears in mind that it must ultimately be to the benefit of the client at the end of the day.

The transfer of a book of business is no longer in the domain of the broker or an insurer to transfer without informing the client. Since 2008 the Financial Services Board (FSB) had begun a process of transferring the approval process from a decision of The High Court to the FSB themselves. This together with additional Directives and information letters published by the FSB during the period 2010 - 2015 has resulted in the FSB having taken a proactive role in ensuring that the client is now the primary focus on a book transfer with their interests being preserved almost to the exclusion of any other party. This has been done through the introduction of an application process which requires pre-approval from the FSB before any transfer is made. 

As a first step, the broker has to firstly ensure that they are complaint with Section 36 and 37 of the Short-Term Insurance Act. These sections detail the circumstances and conditions when a transfer of a book will be considered and, if appropriate in the eyes of the FSB, allowed. 

No longer is it the broker’s sole domain to determine when and if a transfer takes place. The onus is now on the insurance companies involved to lead the request, unless it is a mandated broker, or if the transfer is done individually policy by policy. 

This process is by no means simple or quick to achieve. It is an elaborate process during which the FSB keeps a regular watch and control over and can potentially take anywhere from six to 12 months to finalise. The provisions of these sections are well documented in both the application as well as the guidelines that the FSB publishes. It is advisable that a broker should familiarise him or herself with this process before embarking on a transfer. 

Some of the conditions of the Act are that the broker has to have the support of both insurance companies involved in the transaction. The transferor and the transferee has to be consulted and sign off on the transfer. This sign off requires an audited statement of account in the format required by the FSB both pre and post the transaction. It also requires a Board Resolution from both companies approving the transfer. 

Further requirements are the publishing of the transfer in the Government Gazette as well as national and regional newspapers. The transfer documents also need to be open for inspection by any party for a period of time and is also subject to the final approval of the Registrar.

 The overarching reason must be in the interest of the client for a transfer to be considered and approved. It is the responsibility of all parties involved to ensure that there will be no adverse impact on the client, both from a cost or benefit perspective. The product has to be the same - similar or better than the original. Any extra cost of the new product could jeopardise the transfer to the extent that it could require the implicit approval of the client which would negate attempting a book transfer. 

Once approved, it is then the broker’s responsibility to communicate this transfer to the client in an open and understandable manner.