A traditionally outdated Short-term insurance act

The dynamics of the South African short-term insurance industry have changed as the industry has evolved from an inflexible one to a colourful marketplace with forceful players eager to level the playing field.

Due to this, the short-term insurance act, which was updated a decade ago, desperately needs a facelift to accommodate the sector’s burgeoning needs.

The act can no longer only provide for traditional insurance companies or business models. It needs to allow for greater outsourcing activities as market demand for choice in product and better service has resulted in many skilled people starting outsourced insurance administration and underwriting agencies. This is where section 48 (2) of the act, which recognises that an insurer may authorise an intermediary to enter into a short-term insurance policy on their behalf if certain requirements are met, comes under scrutiny.

As noted in the act, an insurer may only enter into such an arrangement with a single intermediary in respect of each “kind” of insurance policy. Therefore, the act does not distinguish between brokers, administrators or underwriting agents. This ambiguity needs to be addressed as it creates uncertainty in the market and calls into question the roles of various parties as well as the remuneration paid for the services rendered. The definition of “independent intermediary” is too wide and fails to precisely distinguish between the categories of specialists operating in the industry. Different categories of outsourced activities in the industry need to be identified by means of a policy framework, which recognises the changing dynamics of the insurance industry.

The act should allow insurers to internalise or outsource activities based on their core competencies and strategies. Clarity should be sought on remuneration models to distinguish between activities performed and remuneration paid, as well as disclosure requirements to consumers where appropriate.

Through the updating of the act, the fact that traditional insurance companies no longer represent the bulk of the industry will be recognised. It will also stimulate competition as unscrupulous activities will be exposed when regulatory uncertainty is removed. Consumers will also benefit as they will have a greater choice in service providers and products, backed by a clear regulatory framework.

These are all vital aspects to successful insurance provision and will carry on being increasingly important as the industry continues to grow.

Opinion Editorial

By Michael Blain (pictured above right), CEO, Centriq Insurance