Amendments to insurance legislation aim to give more South Africans the opportunity to cover themselves and their assets and will provide for greater protection for policyholders, including a 48-hour turn-around time for funeral pay-outs.
The Insurance Act, commencing on 1st July 2018, was passed by the National Council of Provinces in December.
It brings with it changes to the Long Term Insurance Act (LTIA), Short Term Insurance Act (STIA) and more specifically the Policyholder Protection Rules (PPR), creating new opportunities for existing insurers and providing for licensed micro-insurance products.
Johan Ferreira, Legal and Compliance Officer for Africa Unity Life (AUL) explains, “In future a number of new products can be provided under a micro-insurance licence. Insurers will go through a process with the Prudential Authority to convert their current licences and, if part of their strategy, apply for a micro-insurance licence which can include a number of different life and non-life classes of insurance as set out in Schedule 2 of the new Insurance Act.”
Schedule 1 of the Insurance Act amended the LTIA and STIA to differentiate between registered insurers and licensed insurers.
During the transition period, under these new amendments the LTIA and the STIA will govern market conduct while the Insurance Act will apply from a prudential point of view, to all insurers.
These amendments are designed to introduce micro-insurance products – traditionally funeral plans – more accessible, affordable and fair for consumers.
The second tranche of amendments to the PPRs will bring into effect the National Treasury’s Microinsurance Policy Document, which specify micro-insurance product standards under Rule 2A of the draft PPR’s.
The new Insurance Act and the PPRs provides for regulatory and supervisory frameworks which will make it easier for low-income earners to access quality insurance products.
It also aims to turn informal insurance providers into formal, regulated and resourced insurance providers.
The PPRs will also see that products are designed in such a manner to support an improved consumer understanding of the different insurance products.
The Insurance Act introduces new authorisation classes for the industry.
Under this Act, micro-insurers may offer life and non-life insurance. Life insurance includes classes such as credit life insurance, risk insurance and funeral cover.
Non-life insurance includes motor insurance, property insurance, legal expense, as well as accident and health insurance.
“Insurers will have a blank canvass to roll out new innovative products subject to products standards, of course. These standards protect customers in a number of ways, like the maximum term cover that can be provided; shorter waiting periods and so on. Active policies written under a traditional licence will not be affected at this stage unless transferred into a microinsurance licence,” says Ferreira.
Prudential Standards state that micro-insurers may not, without the approval of the Prudential Authority, issue a life or non-life insurance policy that provides for a loyalty benefit, no-claim bonus or rebate claim.
Under the Prudential Authority, policies will be capped at R100 000 for life insurance and R300 000 for non-life insurance.
There will also be caps on the maximum benefit for funeral policies, whether provided by micro-insurers or traditional insurers, at R100 000.
Consumers will now have a range of micro-insurance products to select from if they want to manage their assets and should therefore be on the lookout for new policies.
“South Africa is a unique country and we need something unique in order for everyone to manage their own risk no matter how rich or poor you are.
“The Insurance Act and the micro-insurance product standards under the new Policyholder Protection Rules will make this a possibility. It is exciting times in the insurance industry,” concludes Ferreira.
Important changes for micro-insurers includes:
- Caps under micro-insurance policies are limited to R100 000 for life insurance and R300 000 for non-life insurance
- Caps on the maximum benefit for funeral policies offered by both micro-insurers and traditional insurers will be capped at R 100 000 to ensure that policyholders are afforded the same protection
- To avoid confusion, only micro-insurers will be allowed to use the word “micro-insurance”
- To ensure that policies are easy to understand, micro-insurance policies and funeral policies may only provide risk benefits with no surrender value or investment elements. A micro-insurance policy may not make any of its policy benefits subject to the principle of average
- Contract terms: Micro-insurance policies should have a contract term of not more than 12 months for life business.
- Variations of the terms and conditions of micro-insurance policies are prohibited unless the insurer can demonstrate that reasonable actuarial grounds exists to justify the variation or change, and that the variation will benefit the policyholder or member concerned
- Waiting periods are restricted to a quarter of the contract term for death or disability due to natural cause; no waiting periods are allowed for policies covering accidental death or disability; no waiting periods are allowed for credit risk policies; no waiting period may be imposed when a policyholder cancels a policy with one insurer in favour of a policy providing similar cover with another insurer
- Exclusions will not be allowed for funeral and credit life classes of micro-insurance policies; exclusions for suicide will be allowed for a period not exceeding 12 months from inception of the policy regardless of whether a micro-insurance policy or a funeral policy has been renewed during the 12 month period. No exclusions should be allowed for pre-existing health conditions for funeral polices and credit life insurance policies
- Excesses will only apply to non-life micro-insurance policies. These may impose only one standard excess per risk event covered which may not exceed 10% of the value of the policy benefits payable for the risk event, or R1000, whichever is the lower amount
- Micro-insurance and funeral policy claims must be settled within 48 hours after receiving all the necessary documentation
- Insurers must reinstate policyholders on the same terms as previously, after a lapse. It is, however not mandatory for the insurer to reinstate a policy when it has lapsed and the insurer and policyholder may choose to rather enter into a new policy instead
- Micro-insurance policies may not provide that a policy benefit, paid as a sum of money, is payable directly to a service provider
- Insurers must submit all proposed new micro-insurance policies and funeral policies to the FSB / FSCA at least 31 days before launching the policies