FSCA grants another extension for exemption on payment for collecting premiums

The FSCA has extended, until further notice, the exemption that allows independent intermediaries to receive compensation, over and above commission, for performing activities that support the direct collection of insurance premiums.

In January 2021, the FSCA published INS Notice 1 of 2021 in respect of regulations 5.1(1) and (2) of the regulations under the Short-term Insurance Act (STIA) and INS Notice 2 of 2021 in respect of regulations 3.2(1) and (2) of the regulations under the Long-term Insurance Act (LTIA). These notices expired on 31 January 2022 and were followed by INS Notice 1 of 2022 and INS Notice 2 of 2022, which granted a further exemption, subject to the same conditions, until 31 January 2023.

Read: FSCA extends exemption on payment for collecting premiums

INS Notice 1 of 2023 and INS Notice 2 of 2023, published on 31 January, delete the expiry date of the exemption. This is the only amendment that these notices make to the notices published in 2022.

In 2019, the FSCA published a position paper setting out its proposals on the future regulatory framework for the collection of insurance premiums. One of the proposals aims to facilitate the payment of remuneration to independent intermediaries where premiums are collected directly into the account of an insurer and the technological systems of the independent intermediary enable direct collection. These intermediaries perform certain activities in support of the direct collection that can be described as “accounting for premium”.

The exemption notices allow for additional remuneration, outside of the prescribed maximum commission, for these activities only and subject to certain conditions. These were set out in the exemption notices issued in 2022.

Click here to download INS Notice 1 of 2022 and INS Notice 2 of 2022.

Why another extension?

The FSCA granted the exemption until 31 January 2023 to allow for the development of draft amendments to the regulations under the STIA and LTIA that would govern the collection of insurance premiums.

In terms of the FSCA’s three-year Regulation Plan, published in June 2022, the Authority will not continue with amendments to individual pieces of regulations that potentially overlap with the envisaged Conduct of Financial Institutions (Cofi) Bill regulatory framework. Therefore, the amendments to the regulations under the LTIA and STIA will not be progressed at this stage. The future regulatory framework for the collection of insurance premiums will be part of the new conduct regulatory framework under Cofi.

FSCA draws attention to the terms and conditions

The Authority said it was important to note that an independent intermediary who performs any activity that falls within the definition of “direct collection of premium” must have written authorisation from the insurer to perform such an activity. These activities may not be “sub-outsourced” among, or by agreement between, intermediaries without the explicit authorisation by the licensed insurer of each of the independent intermediaries involved in any of the activities that fall within the definition of “direct collection of premium”.

It said the authorisation is a requirement in terms of section 47A of the LTIA and section 45 of the STIA. The authorisation must be done in accordance with Part 4 of the regulations under the STIA or Part 8 of the regulations under the LTIA.

Consequently, where more than one independent intermediary is authorised to perform the direct collection of premium activities:

• Each intermediary involved in one or more of the activities must be authorised separately by the insurer in accordance with the LTIA or the STIA;
• The insurer involved must satisfy itself that none of the intermediaries receives remuneration more than once for the same activity; and
• The insurer remains accountable for the effective oversight of the activities of the independent intermediaries insofar as they relate to the collection of premiums on behalf of that insurer.

The FSCA also reiterated that the existing regulations governing the rendering of intermediary services (as defined in the regulations under the LTIA and STIA) and premium collection-related activities apply to the direct collection of premiums.

“Meeting the conditions set out in the exemption notices remains paramount to any insurer or intermediary relying on the exemption to justify the payment of remuneration for the direct collection of premiums. All remuneration arrangements in this respect must be reasonable and commensurate with the direct collection services being performed, also taking into consideration the nature of the function and the systems required to perform such functions,” the Authority said.

Queries about the exemption notices can be sent to the FSCA’s Regulatory Framework Department at FSCA.RFDRegulatorySupport@fsca.co.za.