Compliance with Section 45

The sometimes contentious Section 45, and Part 4 of the Regulations, of the Short Term Insurance Act 1998 (Act No. 53 of 1998), is again a popular topic of conversation – this time amongst motor dealers.

A recent communication by the Financial Services Board to all short term insurers, Directive 97.A.ii (ST), titled Motor vehicle warranty and extended motor vehicle warranty cover, has again highlighted the need for compliance with Section 45, and Part 4 of the Regulations to the Act.

Historical perspective

However far back one chooses to go or from whatever perspective a person looks at Section 45 of the Act, consumer protection is the ultimate goal.

There is reference made to the Regulators concern, at the time, regarding the industry’s solvency margins - bearing in mind that Section 54(4) of the Act provides that for the purposes of the validity of a short-term policy, the payment of a premium under a short-term policy to a person authorised as contemplated in Section 45, shall be deemed to be payment to the short-term insurer under that short-term policy.

The idea of putting a stop to all collection of premiums by intermediaries, apparently considered by the Regulator at the time, led the industry in conjunction with the Regulator and the intermediaries to come up with the idea of the Intermediaries Guarantee Facility. A registered commercial bank within the borders of South Africa may also provide the Section 45 Guarantee.

Status Quo

There is no doubt that many short-term insurers and intermediaries were not compliant in the past – motor dealers included, however times have changed and with the Regulator now clamping down on non-compliance, there has been a flood of calls to the Regulator and Intermediaries Guarantee Facility on this section.

The Process

Forms
The application process is fairly simple, forms are obtainable from IGF Ltd by fax or they can be downloaded from the IGF Ltd website at [email protected] forms must be duly completed and signed by the intermediary. There are sections for completion by the intermediaries accounting officer or auditor, whichever is applicable.

An important requirement on application is the provision of a full set of Annual Financial Statements with the relevant application forms.

Underwriting

These financial statements will be underwritten by IGF Ltd before a guarantee is issued to the applicant.

The underwriting rules are fairly simple and stringently applied to all applications. Due to the fact that the intermediary is collecting money from the man in the street – the insured, IGF is very strict with its underwriting policy and rightly so.

It is expected that intermediaries will have a sound balance sheet in place – should there be any weaknesses detected, collateral security in favour of IGF Ltd will be required before issuing the guarantee.

Where to from here

There are many calls from intermediaries to do away with Section 45. However some commentators have stated that should Section 45 be done away with then something will be put in its place – due to the provisions of Section 54(4) previously mentioned.

Unfortunately, watching another financial debacle unfold before our very eyes will not help the above argument, rather, expect another showering of rules and regulations to come our way.