Deneys Reitz: Changes to the policyholder protection rules

The Registrar of Short-term Insurance has given notice of his intention to promulgate a variation of the Policyholder Protection Rules. It is anticipated that the variation will come into operation on 1 January 2010 and will vary Rule 7.4, which deals with the rejection of claims. Interested parties are invited to make representations to the Registrar by 4 October 2009.

The Registrar of Long-term Insurance has given similar notice of his intention to change the existing rule 16 which is, for practical purposes, identical to rule 7.4 of the Short-term rules.

The current Rule 7.4 provides that:

• The insurer must ensure that where a decision has been made as to the rejection of any claim under a policy or with regard to the quantum of a claim which is in dispute, the policyholder must be informed of the reasons for the decision and that the policyholder may within a period of not less than 90 days after the date of the decision, make representations to the insurer. The 90 day period may not be included in any time barring period contained in the policy for the institution of legal action.
• The notice of rejection must contain the name and contact detail of the insurer and state that any recourse or inquiries must be addressed directly to that insurer.

The Registar previously proposed amending the rule by extending the 90 day period to 180 days but that was never promulgated. The latest proposal is more comprehensive and according to the explanatory note is as a result of the views expressed in the dissenting judgments in Napier v Barkhuizen 2007 5 SA 323 (CC) The latest proposal provides the following:

1. An insurer must accept, reject or dispute the quantum of any claim under a policy within a reasonable period after receipt of a claim. This is in accordance with the existing law.

2. An insurer must within 10 days of taking any decision to accept, reject or dispute the quantum of the claim, notify the policyholder of its decision in writing.

3. If the insurer rejects or disputes the quantum of a claim, the notification to the policyholder must inform the policyholder of the reasons for the decision and that the policyholder may within a period of not less than 90 days after receipt of the notice make representation to the relevant insurer in respect of the decision.

4. In addition the insurer must inform the policyholder of the provisions of the Financial Services Ombud Schemes Act 2004 and the implications of the Act for the policyholder in “an easily understood manner”.

5. The notice must also inform the policyholder of any time limitation provision in the policy for the institution of legal action, and must set out the implications of that provision for the policyholder in an “easily understood manner”.

6. If there is no time limitation provision in the policy, the notice must advise the insured that the prescription period applicable is that contained in the Prescription Act and the implications thereof in an “easily understood manner”.

7. If a claim is rejected or quantum is disputed on behalf of an insurer by a person other than the insurer, such person must provide the notice referred to above and include in that notice information referred to above, as well as the name and contact details of the insurer and a statement that any recourse or inquiries must be addressed directly to that insurer.

8. In the event that the policyholder makes representations to the relevant insurer, the insurer must within 30 days, in writing, notify the policyholder of its reviewed decision. If the decision is to confirm the decision to reject or dispute the quantum of the claim, then the notice must inform the policyholder of the reasons for the decision and include the information contained in the original notice of rejection.

Time limitation

The new Rule 7.4 provides that any time limitation provision that may be provided for in a policy entered into after 1 January 2010 –

• may not include the 90 day period referred to above; and
• must provide for a period of not less than 6 months after the expiry of the 90 day period referred to above for the institution of legal action.

The rules also provide that despite the expiry of the time bar period, the policyholder may request the court to condone non-compliance with the clause if the court is satisfied, among other things, that good cause exists for the failure to institute legal proceedings and that the clause is unfair to the policyholder.

Finally, Rule 7.4 provides that for the purposes of Section 12(1) of the Prescription Act, 1969, a debt is due after the expiry of the 90 day period referred to above.

The proposed variation of the Policyholder Protection Rules will have important consequences for insurers.

Policy wording for new or renewed policies after 1 January 2010 (including monthly policies) which have a time bar period will have to be amended to reflect that the time bar period is not less than 6 months after the expiry of the 90 day period.

Notification of the decision to policyholders will have to comply with the provisions of the new rule and as the rule currently stands, insurers will have to notify policyholders within 10 days of their decision. The longer this takes the longer will be the time bar period.

The proposed rule also introduces a provision for the policyholder to approach the court to condone non-compliance with the time bar clause if the policyholder is able to persuade the court that good cause exists for the failure to institute legal proceedings and that strict enforcement of the clause is unfair to the policyholder. This means that even though the insurer believes that the claim has become time- barred, it may be faced with an application for condonation at some later stage.

The rule also recognises that Underwriting managers or brokers may reject claims or dispute quantum. Representations however must be made the Insurer and not the decision maker, which must then deal with the matter within 30 days.

The proposed variation will require Insurers and others in the industry to change the way in which decisions are communicated to their clients.

by Craig Woolley - Director, Durban

If you have comments address them to the appropriate Registrar through Mrs M. van Zyl [email protected]. When the final rules are published we will analyse them in regard to what needs to be done.