Demonstrate knowledge and insight into the Short Term Insurance Act (No 53 of 1998) and the accompanying Regulations. Short-Term Insurance: History of insurance Definition of “insurance” Acts that govern insurance Lloyd’s of London South Africa (Short Term Insurance Act of 1998)

1.1 The reason for the Short Term Insurance Act is explained in terms of the need for legislation in insurance. Why is it necessary for a Short Term Insurance legislation? regulate protects spells out legal requirements conduct business fairly due care and diligence Where can you buy a hard copy of the Short Term Insurance Act? “Government Printer”, Bosman Street, Pretoria.

1.2. Terminology defined in Section 1 of the Short Term Insurance Act is explained. Short Term Insurance Act, Section I. Terminology: Registrar representative intermediary policyholder insurer premium risk

1.3 The concept of short term insurance is explained with reference to the different classes of business defined in the Short Term Insurance Act. Primary function of insurance? Financial security and “peace of mind” Different classes of business Different types of Short-term Insurance policies: Accident and health policy Engineering policy Guarantee policy Motor policy Property policy Transportation policy Miscellaneous policy

1.4 The parties governed by the Short Term Insurance Act are named and indication is given of the role of the Registrar in administering the Short Term Insurance Act. Parties governed by the Act: The Registrar Insurers Intermediaries (e.g. brokers) Policyholders (insured) Representatives Any other entity that might may involve himself in the process The role and duties of the Registrar: submission of statements an accounts liabilities assets solvency margin regulations separation of asset

1.5 The consequences of non-compliance with the Short Term Insurance Act for a short term insurance organisation are named, and an indication is given of the recourse that a client has to the Registrar in cases of non-compliance. Section 64 of the Act explains the consquences of non- compliance: offender shall be guilty of an offence shall be liable on conviction to a fine up to R 100 000 imprisonment not exceeding one year or both such fine and imprisonment non-compliance with administrative return shall be to the value of R 1000 per day for every day that a return remains outstanding

Avenues of redress for the consumer Anyone may lodge a written complaint to the intermediary concerned and, if not resolved to the satisfaction of policyholder to: the Registrar of short term insurance The Registrar shall: by written notice, require a full reply, from insurance party involved if necessary, by written notice, require insurance party involved to take particular corrective steps Registrar may also take any steps in connection with the breach, which are available in law.

Specific Outcome 2  2.1 The requirements for registration as an insurer are listed as prescribed in the Short Term Insurance Act. Part II, Section 7 of the Act, explain the requirements of registration: No person shall carry on any kind of short term business, unless that person is registered. Section 56 of the Act prescribes the provisions relating to Lloyd’s underwriters.

2.2 Returns that an insurer is required to submit to the Registrar are identified and an indication is given of the consequences of non-compliance. Documents that the insurer has to return to the Registrar relating his business: in the manner and format; containing information; and of the previous financial year, prescribed by the Registrar: a revenue account profit and loss account balance sheet

Consequences of non-compliance In Section 64 of the Act: the offender shall be guilty of an offence and shall be liable on conviction to a fine of up to R100 000 depending on the category of offence as well as the type of offender imprisonment not exceeding one year or both such fine and imprisonment the non-compliance with the administrative return requirements as they relate to returns shall be to the value of R 1 000 per day for every day that a return remains outstanding.

Solvency margin of a company is: 2.3 The concept of solvency margin is explained in terms of approved assets over liabilities. Solvency margin of a company is: the safety margin that is prescribed by law, which must be the equivalent of at least 25% of liabilities of the aggregate of surplus assets and contingency reserves. Meaning that insurer has to keep 25% of its reserve funds after paying its claims, expenses and other costs. Asset: An asset is any item, tangible or intangible, which belongs to the organisation concerned. Liability: Shows the financing or capital structure of the enterprise as at a specific date. Liabilities are usually divided into two criteria namely, the term for which the funds have been made available and secondly the source of the funds.

Curatorship If the Registrar feels a company’s solvency margin is too low, he can put the company under curatorship. Meaning: A qualified person who will look after the interest of policyholders and shareholders until a decision is made regarding the future of the company. The solvency margin therefore, to the short term insurer, is of outmost importance.

2.4 The requirements imposed on Lloyd’s are compared to those that apply to any other insurance organisation in terms of registration and operations. Section 56 of the Act, prescribes the provisions relating to Lloyd’s underwriters: act like normal brokers but, are also able to place insurance at Lloyd’s of London. Part II Section 7 of the Act, refers to the requirements relating to registration and operations pertaining to other short-term insurers.

Specific Outcome 3 Explain how the Short term Insurance Act controls intermediaries. Three classes of intermediaries: Brokers: provide a professional intermediary service May be responsible for collection of premiums Agents: sell insurance as part of other business they are in Not responsible for collection of premiums Lloyd’s brokers: act as normal brokers can place insurance at Lloyd’s of London

Explain how the Short term Insurance Act controls intermediaries. Refer to Section I(xliv) of the Act, explain “services as intermediary”. Independent intermediary: a person other than a representative who renders services as an intermediary includes a Lloyd’s correspondent: acts like normal broker can place insurance at Lloyd's of London

3.1 The way in which commission and certain fees are regulated is explained with reference to Short Term Insurance Act. What “commission” means: the fee which is paid to a representative and intermediaries in lieu of the business that is generated by the representative. it is therefore the earnings for the insurance business that is generated. brokers refer to commission as “brokerage”.

3.1 The way in which commission and certain fees are regulated is explained with reference to Short Term Insurance Act. Section 48 of Regulations of the Act, stipulates the maximum commission payable to intermediaries: These are as follows: motor policy, maximum commission – 12,5% of the premium payable under policy non-motor maximum commission – 20% collective policies written through Lloyd’s – 20% any other policy written through Lloyd's –25%

3.2 Limitations on business practices in terms of placing business with insurers are described with reference to case studies and Short Term Insurance Act. Free business in relating to credit Insurance: Section 43 of the Act See case study: Joe Profit

3.3 The concept of a Lloyd’s binder is explained and the criterion used by Lloyd’s to enter into an underwriting relationship with an intermediary is described with reference to specialist classes of business. Lloyd’s of London is not an insurance company, but an association of underwriting syndicates. Lloyd’s brokers can negotiate cover members of syndicate fully liable for losses members must satisfy the Committee of Lloyd’s Definitions: Lloyd’s broker Lloyd’s correspondent Lloyd's representative Lloyd’s underwriter

3.4 The concept of a Lloyd’s binder is explained and the criterion used by Lloyd’s to enter into an underwriting relationship with an intermediary is described with reference to specialist classes of business. Part VII, Section 48 of the Act, explain how Lloyd’s binders are regulated in terms of the Act. No independent intermediary or Lloyd’s binder shall be allowed to accept any short term insurer unless an agreement to this effect is in place.

3.5 The rights and responsibilities of an intermediary in accounting to the insurer are explained with reference to the collection and payment of premiums. Premiums: Collection of premiums by intermediaries (Section 45) Intermediary to provide guarantee (Regulation Part 4) Payment over to insurer in 15 days Only one intermediary to collect Personal lines premium Premiums for a policy can be paid in different ways: annually monthly quarterly or half-yearly When premiums are payable Receipts (to be issued) for premiums paid in cash (Section 46)

Specific Outcome 4. Explain how the Short Term Insurance Act regulates short term insurance policies and protects individual policyholders. 4.1 The standard duration of policy is explained with reference to Short Term Insurance Act. Standard duration of a short term policy Business/commercial Personal lines The decision to void, cancel or reject

4.2 Rules governing policies issued to minors are explained with reference to Short Term Insurance Act. Rules regulating to policies issued to minors, Part VII, Section 52, of the Act. Minors over 18 years of age may enter into and deal with policies without the consent of the guardian.

Terms by which parties agree to be bound: person insured 4.3 Reasons why a personal lines policy must be issued within a prescribed period are explained with reference to the rights and responsibilities of both parties to the contract. Reasons why a personal lines policy must be issued within a prescribed period: enough cover excess scope of cover conditions exclusions Terms by which parties agree to be bound: person insured risk insured against amount payable period of insurance

4.4 The way in which the Short Term Insurance Act protects individual policyholders is explained with reference to Section 55 of the Act and the Policyholder Protection rules. Part VII, Section 55 of the Act, relates to the protection of policyholders. (Annexure C) These rules may provide that: particular imports may not appear information must be made known policyholders may cancel policies under certain conditions different arrangements applicable to various policies determine and implement fines