With the submission of 23 February, time is running out for stakeholders and interested parties to submit their comments on the intention to introduce the Long-Term Insurance Amendment Bill in Parliament.
United Democratic Movement MP Nqabayomzi Kwankwa recently announced plans to introduce the Amendment Bill, aiming to amend the Long-term Insurance Act. The proposed changes address concerns that the current Act lacks provisions for long-term insurers to conduct due diligence on funeral policies, potentially leading to policyholders unknowingly holding multiple policies with no added value.
Read: Proposed amendment Bill aims to end funeral cover over-insurance
The draft Bill intends to amend the principal Act to:
- Require the Prudential Authority (PA) to prescribe rules related to protecting a policyholder of multiple funeral policies for the beneficiaries, and to require a long-term insurer to offer advice within a certain period to existing policyholders related to the consequences of holding multiple funeral policies for the same beneficiaries.
- Provide that non-disclosure of a funeral policy for the beneficiary does not affect the validity of an affected funeral policy, and a policyholder of a funeral policy is entitled to cancel any of the multiple funeral policies held for the same life event after being advised of the benefits implications thereof.
- Provide for a sanction in the event of a failure of a long-term insurer to comply with certain rules and disclosure obligations.
In a rapidly changing environment, the insurance industry is adapting to the new rules that impact it. An expert in insurance law at Sanlam recently sat down with Moonstone to explain what these amendments would mean for both the insurance companies and the public. Key points such as limitations and “the good and the bad”, were discussed.
Effective from 1 July 2018, the PA prescribes a maximum of R100 000 (per life insured), escalating annually, from the commencement date of Prudential Standard GOI 7, by the Consumer Price Index annual inflation rate published by Statistics South Africa. Why was it decided to limit the amount to R100 000?
The cap relates to funeral policies sold under the Funeral Class (Class 4 in the Insurance Act, 2017) and, in accordance with the Governance and Operational Standards for Insurers (GOI7), specifies a maximum prescribed limit of R100 000 per life insured. In 2020, the regulator provided further clarity in a joint communication by the PA and FSCA advising that this should be interpreted to mean R100 000 per life assured per policy.
How many funeral policies may one person have according to the Insurance Act?
There is no limitation set out in the Insurance Act. However, Insurers may choose to set a maximum number of policies as part of their business rules.
Is there a gap in legislation regarding funeral policies, given that some insurers restrict multiple policies while others don’t, leading to varying limitations on claims payouts, and why isn’t there uniformity across insurers in this regard?
As the maximum number of policies is not regulated, there is no industry-wide rule on this.
Will the Amendment Bill be “good” or “bad” for the insurance industry (and the public) and why?
The insurance industry places great importance on balancing the need for thorough checks while ensuring the client experience is not compromised. For policyholders, the Amendment Bill will ensure they are made aware of any negative consequences of having multiple policies upfront. While insurers generally disclose maximums/caps relating to the holding of multiple policies during the sales processes and contracting documents, these changes may increase the obligations of insurers in terms of the additional due diligence and disclosures required.
Considering the amendments that are being suggested, if the Bill is passed, what implications will this hold for insurers and brokers alike that they need to take into consideration?
Checks and balances already feature strongly as part of the insurance sales process, but the amendments will have implications. This includes additional due diligence as well as a system impacts to track the number of policies and level of cover per life assured.
