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Consumer Protection Act (CPA) Shaping the future of insurance

01 August 2011 Patrick Bracher, Deneys Reitz Inc.

Although temporarily excluded from the CPA, the short-term and long-term insurance industries must be aligned with the consumer protection measures in the CPA by 1 October 2012. This requirement will undoubtedly shape the future of the insurance industry.

There simply is no time for major amendments to both the Long-term Insurance Act and the Short-term Insurance Act. Eighteen months is too short a time within which to do major legislative changes through Parliament.

Legislative change not the answer

In any event, it is not appropriate to amend the acts themselves. The CPA only protects small businesses with assets or annual turnover of less than R2 million and private individuals. Some of the contract provisions that are presumed to be unfair unless justifiable only relate to consumers who are entering into agreements in their personal capacity, and not in the ordinary course of their business or profession.

Therefore, there will be one consumer-protected regime for individuals and small businesses, another for larger corporations (which includes partnerships, trusts and associations), and yet another contractual regime for individuals in their personal capacity. It is not appropriate to have three parallel systems in the two insurance acts.

Policyholder protection rules

The appropriate response is to prepare a comprehensive set of policyholder protection rules under each act which governs in detail the rights of protected consumers. This will ensure that these rules only relate to the protected consumers and that there is an easily accessible set of rules relating to these consumers that is not mixed in with, for instance, commercial lines insurance for major business entities.

Even this will be a difficult task. The many provisions entitling consumers to quality service in the CPA and its regulations will have to be isolated and adapted to the insurance market. Ways must be found to deal with shifting of risk, disclaimers, limitation of actions and other aspects that are intrinsic to insurance contracts but are now regulated by the consumer law.

Unfair terms

The courts have the right to set aside a term which is unfair, unreasonable or unjust towards the consumer. Unfair terms include provisions which are excessively one-sided, so adverse to the consumer as to be inequitable, or in reliance upon a false, misleading or deceptive representation. Insurers will be accountable for any pre-contractual misrepresentation to a greater extent than insured persons are at the moment. Although accountability by both parties has always been part of our common law, it will now be an enforceable and well-known consumer right.

The clock is ticking

The 18-month period is diminishing by the day. It would be better to draft appropriate consumer policyholder protection rules as soon as possible rather than adding another dimension to the insurance market through ‘treating the customer fairly’ requirements. Those requirements can be built into the proposed rules and given legislative force.

The CPA does not say who will decide whether the insurance sector laws have been “aligned with the consumer protection measures” in the CPA. If there is any inconsistency between the insurance laws and the consumer laws, the two acts will apply concurrently. If that is not possible, the provision that extends the greater protection to the consumer prevails. If the new insurance laws fall short, the CPA will apply to insurance transactions to that extent.

There is, therefore, good reason to align the proposed new policyholder protection rules as closely as possible with the CPA. This entails considerable challenges. A public process that enjoys early input from all stakeholders is essential.

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