Insurance intermediaries should think twice before asking their clients to sign a power of attorney (POA), because doing so precludes them from entering into a binder agreement or invalidates an existing agreement.
In terms of regulation 6(2)(1) issued under the Short-term Insurance Act, an insurer may only have a binder agreement with a non-mandated intermediary or an underwriting manager.
The regulations define “a mandated intermediary” as “an independent intermediary that holds a written mandate from a potential policyholder or policyholder that authorises that intermediary, without having to obtain the prior approval of that potential policyholder or policyholder, to perform any act, including termination, in relation to a policy, that legally binds that potential policyholder or policyholder”.
Therefore, a broker who has already entered into binder agreement cannot accept a POA, while a mandated broker who accepts a POA cannot also be a binder holder.
Moonstone has received enquiries from our compliance officers about an underwriting manager that is issuing what it calls a POA consent form to facilitate the signing of new business.
In its communication to brokers, it says: “According to the Policyholder Protection Rule 9, brokers may not complete/partially complete/sign documentation on behalf of a client.”
The underwriting manager says the consent form gives its brokers the POA “to sign on behalf of the insured to avoid delays in submitting documentation, such as proposal forms”, and means brokers will not have to send paperwork back to clients for completion.
What does the regulation say?
Rule 9 states: “No insurer or intermediary may in connection with any transaction relating to a policy require, permit or allow a policyholder, potential policyholder, member of a group scheme or potential member of a group scheme or claimant or potential claimant to sign any blank or partially completed form necessary for the purpose of the transaction, where another person will be required, permitted or allowed to fill in other required detail, or conclude any such transaction where any such signing and providing of detail have occurred.”
So, the rule does not prevent brokers from completing, or partially completing, documentation; it prohibits them from allowing policyholders from signing blank or partially completed forms. There is nothing in the rule the stops the broker from completing a form – as long as the client signs the form afterwards.
Insurers and underwriting managers should take care to ensure that the intermediary tools they supply don’t have unintended consequences, such as making a non-mandated intermediary a mandated one.
