SOUTH AFRICAN INSURANCE ASSOCIATION . SOUTH AFRICAN INSURANCE ASSOCIATION CENTENARY 1907 - 2007

Insurance Laws Amendment Bill Presentation to PCOF Barry Scott – Chief Executive Refilwe Moletsane – Deputy Executive

South African Insurance Association Represents short-term insurance companies 53 members Established 1907

Comments on Process Clause 4 of the Memorandum: “The proposed amendments were made available for public comment for a period of 30 days” Reality is that the Bill was received by industry just 2 weeks before submissions were due “… consultations with affected industry participants prior to the submission of the Bill to Cabinet were also undertaken” No such consultation took place with industry prior to the Bill being presented to Cabinet

SAIA Comments Technical changes: Policy changes: Auditors etc Financial Condition Reporting Medical Schemes Demarcation S48 (binder issues)

Parallel Processes Nienaber enquiry into Consumer Credit Insurance SAIA submission to Treasury on intermediary issues Proposed National Treasury Discussion Paper on intermediary issues

“ACCIDENT AND HEALTH POLICY” Current Act definition of “A&H Policy” provides for - OBJECTIVE exclusions Intention of Bill remove potential uncertainty - whether products - governed under STIA / MSA = removal of the criteria for the determination of - “A&H Policy” in the current “Act”

“ACCIDENT AND HEALTH POLICY” Concerns Determination of “A&H Policy” within STIA = subject MSA definition of - “business of medical scheme” = Interpretation of the Registrar of Medical Schemes “Uncertainty” exist on product provided / proposed – within the ambit of MSA – application to Registrar of Short-term Insurance Section 70(1)(A) – laudable – consultation process is limited to the Minister of Finance and Minister of Health.

“ACCIDENT AND HEALTH POLICY” Concerns / Suggestions Up-front definition of “A&H Policy” Onus on Short Term Insurers to prove that they are not conducting “business of Medical Scheme” Current products have been designed subject to the provisions of the current Act Need for legal certainty within STIA No need to refer to other legislation Products “ STIA” will always be in contravention unless otherwise directed

“SECTION 48 OF STIA” Current “Act” Intended to regulate : Unclear : process of entering into Binding Agreements relationship between insurer, insured and intermediary with a “binder’ remuneration Unclear : Independent intermediary could bind an insurer ?UMA / entity with Binding Authority Services specified = “Services as Intermediary” Effects of FSB Interpretive note – Dec 1998

“PROPOSED SECTION 48 OF STIA” SAIA Understanding : – distinguish Independent Intermediaries who act :- - for the insurer ( Binder ) = earn fees - for the insured = earn commission separation of functions Intermediary who offers : - - “service as an intermediary” - “other person” who may or may not be II performs additional functions – new sec 48 A

“CURRENT SEC 48 VS PROPOSED SEC 48” “Services as Intermediary” Proposed amendment –services of the insurer are paid by insurer and services in question are also remunerated for in terms of 48A binder or / regulated commission by the insurer Not recognised :- Intermediary who carries out functions on behalf of the insured and insurer = remunerated for one function

“PROPOSED SECTION 48” Concerns “Limited” to Independent Intermediaries BUT – refer to remuneration paid to 48A ? Can this intermediary also perform sec 48A? = additional remuneration Proposed provision fail to achieve clear separation of functions = NO clarification on “Services as an Intermediary” has been provided

“SPECIFIC CONCERNS OF PROPOSED SEC 48” 48 A(1)(a-e) removal of distinction between Underwriting Managers Administrators and Intermediaries with Binding Authority No clarity as to how services listed in 48A(1) (a-e) interrelate to “ services as int” AND also in term of FAIS

“SPECIFIC CONCERNS OF PROPOSED SEC 48” Section 48(2)(a-e) Obligation of disclosure –prohibition 48(4)(c) Prohibition delegation of function – proposal fails to recognise efficiencies = same should be authorised by insurer Section 48(3)(a-c) Prohibitions - ? Additional amount to premium - Section 8(5)? Can intermediaries earn same Section 8(5)? Gross Premium?

“SPECIFIC CONCERNS OF PROPOSED SEC 48” Section 48 3(a-e) support for removal of profit share BUT Not on all binder agreements Underwriting Managers – extension of insurer, provide specialised expertise and manage the financial soundness within a particular area of business. These entities who operate as though they are the insurer and can never be in a conflicted relationship = 48(3)(c)SHOULD not apply to such entities

“SPECIFIC CONCERNS OF PROPOSED SEC 48” Section 48(4)(a-c) Purpose of the prohibitions is understood- operational efficiencies created should be considered ?Non discretionary services – the link between intermediaries and administrations will not result in any conflict Full disclosure = eliminate conflicts

“SPECIFIC CONCERNS OF PROPOSED SEC 48” Section 48(5)(a-c) “Owner of policies?” Suggestions - Proposed Section 48 Distinction between Underwriting Managers Intermediaries with Binding Authority and type of business they can bind Brokers without Binders

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