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UMAs changing risk carriers

01 August 2017 Hollard

An Underwriting Manager (UMA) under the Long term Insurance Act (LTIA) and the Short term Insurance Act (STIA) is defined as a person that performs one or more binder functions. If that person renders services as an intermediary:

• In terms of the LTIA: does not perform any act directed towards entering into, maintaining or servicing a policy on behalf of an insurer, a potential policyholder or policyholder;

• In terms of the STIA: does not perform any act the result of which is that another person will or does or offers to enter into, vary or renew a policy on behalf of an insurer, a potential policyholder or policyholder; and renders those services on behalf of an insurer only.


As per the definitions above
In terms of the LTIA and STIA, an insurer may only allow another person to perform binder functions on behalf of that insurer in terms of a written agreement and in accordance with the Acts and Regulations.

A UMA is therefore created through a binder agreement with an insurer in terms whereof binder functions are performed on behalf of an insurer. A UMA with no binder agreement is not a UMA as per the definitions set out above.

If a UMA already has a binder agreement with an insurer and wishes to enter into a binder agreement with another insurer in respect of the same class of policies, both insurers must agree in writing to the new binder agreement being entered into before the UMA enters into the binder agreement with the new insurer.

Legalities in changing risk carriers
If a UMA no longer wants to perform binder functions for a specific insurer, the UMA can cancel the binder agreement with that insurer.

In terms of the LTIA and STIA Regulations, the binder agreement must provide for a termination period of at least 90 days that will allow the UMA and insurer to comply with any legislative requirements relating to the policies and for the transfer or sharing of all records in respect of the policies.

The insurer must, 60 days before the expiry of the termination period, inform the Financial Services Board (FSB) in writing of the date on which the binder agreement will terminate; of the reasons for the termination of the binder agreement; how the policies will be dealt with and how any legislative requirements relating to the termination of the binder agreement or policies will be complied with.

Policies after the termination
The policies are generally not affected by the termination of a binder agreement, other than the fact that the binder functions with respect to those policies will be performed by a new binder holder or the insurer.

As the UMA cannot render services as an intermediary directed towards entering into a policy by an insurer, a potential policyholder or policyholder, the UMA cannot intermediate the entering into policies between the new insurer and policyholders.

In some instances the insurer and UMA agree that if the UMA terminates the binder agreement, the insurer will transfer the policies to the new insurer for which the UMA will be performing binder functions.

Sometimes the old insurer terminates the policies when the binder agreement is terminated as the insurer can no longer service the policies.

This would be an opportunity for intermediaries of the new insurer to contact these policyholders to market the new insurer’s policies with respect to which the UMA will perform binder functions. It is also possible for intermediaries of the new insurer to contact the policyholders and render a financial service that result in a replacement.

The consent of the policyholder is required for the cancelation of the old policy and the taking out of the new policy and the replacement process would need to comply with the relevant regulations.

 

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