Soapbox and some SOI please

The SOI, and its not a Far Eastern dish, or condiment, its that pesky statement of intent that the National Treasury and the life offices signed a year ago, and it appear to be full of ifs, buts, and what-ifs.

The history to events which led to the statement, are not really relevant anymore, but what is happening is that clients were and are looking for more flexibility, and it appears that people want to transfer from old to new generation products, so the SOI and the timing of the new generation product push is fortuitous. 

Interesting enough the SOI is not legally binding, and hasn't been for the past year.  That happens shortly when it is passed into law as part of amendments to the Long term Insurance Act, and its at this point that the technical terms and details will be spelt out.

What readers should remember is that 2001 is the date to bear in mind. RAs and policies are covered, although endowment policies and some qualifying whole life products fall outside of the SOI.

In a nutshell it appears that the long-term savings policies are the main focus, and for any new entrants who focus purely on providing risk products, they neatly sidestep the legacy of poor product design and mis-marketing.

On a practical level the old style IT systems are part of that legacy of poor product design, and it appears that its not that cost effective to enter the system and look and modify records or cancel policies.

There is one interesting part of the SOI that should give some solace to consumers - there has to be communication with policyholders about whether they are entitled to a refund, or not. The amended act has this condition in writing.

It also appears that life offices are obligated to advertise to notify ex clients that they may qualify for a refund. Consumers and ex consumers have a three-year time frame to knock on the door and ask for status.

While there is an obligation to advertise there doesnt appear to be any means test of measurement of how much advertising must be undertaken. There is only a need to work within the letter of the law or perhaps some will work within the spirit of the law.

So the media platforms can lick their lips in anticipation in terms of increased advertising spend, as the life insurers attempt to communicate with their ex clients. Let's wait and see how the life insurers respond to this, and whether it's in spirit or the letter, of the law.

But wait - theres more and clients shouldn't get too excited about that potential refund, specifically if we are talking about RAs. It appears that SARS and National treasury still have to sign off on how they will treat the cash payouts and whether there will be any tax implications.

So life offices won't be paying anything out - cash wise - until this matter has been resolved. On the other hand, for those who are still members of funds, the payout into their current fund is done without any tax implications.

Editor's thoughts:
* So what about commission and churning? Well, this could be a big issue and could become a driver to those less scrupulous operators who don't have their clients' best interests at heart.
* There is an arbitrage risk as the commission regulations are only due out next year. Hopefully responsibility and a sense of duty will prevail

If you have further questions about the statement of intent click here for a question and answer document.