What to expect when the Draft Insurance Bill becomes and act in early 2016

The South African insurance industry has been undergoing significant changes this year, with more to be enacted early next year. On 17 April 2015, the National Treasury and the Financial Services Board issued a request for public comment on the Draft Insurance Bill, 2015 (“the Bill”). The Bill is in line with the Twin Peaks model envisaged in the Financial Sector Regulation Bill.

The Bill aims to promote the maintenance of a fair, safe and stable insurance market through the establishment of a consolidated legal framework that will regulate and manage the insurance sector, partly through the amalgamation of substantial portions of the Long-term Insurance Act (Act 52 of 1998) and the Short-term Insurance Act (Act 53 of 1998). The Bill also aims to regulate the insurance industry in a manner that is consistent with international standards.

The Bill sets out minimum provisions and powers necessary to regulate insurers, whilst delegating power to introduce secondary legislation, as well as giving the Financial Services Board the power to implement and enforce the Bill. It is important to note, that the Bill will amend the definition of “insurance policies” held under the Long Term Insurance Act, No. 52 of 1998, and Short Term Insurance Act, No. 53 of 1998. The new definitions are written in the widest terms possible, allowing for future flexibility and the introduction of new products to the market.

Here are a few notable changes that the Bill introduces:

“Long-term policy” is currently defined as an assistance, disability, fund, health, life or sinking fund policy (or combination of these). The new definition of “long-term policy” in the Bill is:
“Any arrangement under which a person, in return for the payment of a premium, assumes a specified risk from another person by undertaking to pay that other person (his estate, or another identified person) a lump sum or specified sums of money at specified intervals, or render a service which serves either to make good a full or partial patrimonial loss (or liability for patrimonial loss) of that other person on the happening of an uncertain or unplanned life event, disability event or death event relating to that person; or which serves as solace for a non-patrimonial loss of that other person.”

The current definition of a “short-term policy” in the Short Term Insurance Act is that of an engineering, guarantee, liability, miscellaneous, motor, accident and health, property or transport policy. The new definition of a “short-term policy” proposed in the bill is a “non-life insurance policy” as defined by the Bill. Non-life insurance policies are those which:
“…Involve an undertaking by an insurer to pay a lump sum or specified sums of money at specified intervals, or to render a service or effect a reinstatement which serves to make good a full or partial patrimonial loss, or liability for patrimonial loss, on the happening of an uncertain or unplanned event (excluding a life, disability or death event).”

The Bill also defines “non-patrimonial loss” as:
“…Distress in some form or another flowing from the impairment of an interest in a person’s life or wellbeing where the interest relates either to the own life and wellbeing of the person or that of his/her permanent life partner, spouse or civil union partner; or to the life and wellbeing of a third party where close ties based on family, dependence or employment exists between the person and the third party.”

This definition now regards same-sex partners as “family” in terms of an insurance policy.

Schedule 2 of the Bill introduces classes and sub-classes of insurance business e.g.: in terms of section 23 of the Bill, an insurer, other than a micro-insurer, must be licensed to conduct non-life or life insurance business, and may not be licensed to conduct both, and the insurer must be licensed to conduct one or more of the classes or sub-classes of insurance business set out in Schedule 2 in respect of the kind of insurance business it will conduct.
It is important that insurance companies familiarise themselves with the entire Bill as it is predicted that the Bill will be enacted in early Q1 of 2016.


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