Chairperson: Portfolio Committee on Finance

3rd Floor, JCC House, 27 Owl Street, Milpark, 2029  PO Box 30619, Braamfontein, 2017 Tel +27 11 726 5381  Fax +27 11 726 5351  [email protected]  http://www.saia.co.za

2008/05/26

Mr NM Nene Chairperson: Portfolio Committee on Finance Committees Section P. O. Box 15 CAPE TOWN 8000

Dear Mr Nene,

The Insurance Laws Amendment Bill - Submission by the South African Insurance Association on behalf of its member companies

The South African Insurance Association (SAIA) welcomes the opportunity to provide comment and to make a presentation to the Portfolio Committee on Finance (“the Committee”) on the draft Insurance Laws Amendment Bill (“the Bill”).

The SAIA represents its fifty-three member short-term insurance companies operating in South Africa, who collectively underwrite the bulk of premiums written in the short-term insurance market. The association was formed in 1907, and thus has been in existence for more than one hundred years.

GENERAL COMMENTS

The Bill was distributed by the Committee to the SAIA for comment on Friday, 9 May 2008, with an initial request for comments by 26 May 2008. This allowed less than two weeks for comment.

Clause 4 of the Memorandum on the Objectives of the Bill therefore erroneously states that, “The proposed amendments were made available for public comment for a period of 30 days”. We draw the attention of the Committee to the fact that this was not the case.

Furthermore, Clause 4 goes on to state that “… consultations with affected industry participants prior to the submission of the Bill to Cabinet were also undertaken”. To the best knowledge of the SAIA there was no such consultation with the industry at all before submission of the Bill to Cabinet (on 14 April 2008).

The Bill has major implications for the short-term insurance industry. As such, we are extremely concerned that the time made available to comment was so short, and that

Directors: MA Samie (Chairman), MC Truter (Deputy Chairman), IM Dadabhay*, NV Beyers, CN Zungu*, CW Hitchcock, K Kennedy, A Khilosia, IM Kirk, M Tyikwe*, A Klennert, HR Moses*, NG Kohler, PG Walters*, WJ Lombaard, AL Mhlanga, RJ Moletsane, JJ Ngulube, BN Madhav*, SK Phage, WT Roos, TM Devitt*, SH Schoeman, B Scott, JA Vink *Alternates

All rights reserved. No portion of this document may be reproduced or transmitted in any form or by any means without prior written permission from the SAIA. (Association Incorporated under Section 21) (Registration No. 1998/25543/08)

-2- there was no consultation by Treasury or the Financial Services Board with the SAIA prior to submitting the Bill to Cabinet.

The SAIA Board has therefore requested that we record our concern about this lack of consultation, and inadequate time within which to comment. Consequently, our submission has perforce been made in haste, without proper consultation with all our stakeholders and business partners, and may therefore be lacking in certain aspects. The SAIA Board is consequently concerned that this could undermine the credibility and laudatory aims of the Bill.

We would have appreciated a more thorough process of consultation, and a more reasonable period within which to consider the Bill and draft our submission, in order for us to do justice to this important piece of legislation.

Therefore, despite having made this submission, we respectfully request a further period of at least two months in order to undertake a more thorough process of consultation with our industry stakeholders and to revert to the Committee with a more considered, in-depth response.

From the use of certain terminology and the erroneous reference to section 49A (which is the number of the corresponding section to section 48 of the Short-term Insurance Act [“the Act”] in the Long-term Insurance Act), we are concerned that the proposed changes were drafted with the long-term industry in mind and then superimposed on the Act – illustrated by the use of terminology such as “the value of policy benefits”. This leads us to question the amount of industry-specific insight that has been utilised in the drafting of the Bill. This strengthens our request for more time to scrutinise the Bill.

SUBMISSIONS

The SAIA response is divided into three major areas of impact in the Bill, each contained in a separate annexure to this covering letter. These are:

 Changes to the definition of “accident and health policies” and a clause dealing with the demarcation between medical schemes and accident and health policies (Part A)  Changes to Section 48 of the Act dealing with intermediaries and binder agreements (Part B)  Comments on other sections of the Bill (Part C)

At least one member company has different views on the proposed changes to section 48 of the Act. These views are incorporated at the end of Part B under “Divergent View”..

Others members have expressed the view that the proposed amendments to the Act appear to be more focused on the remuneration of various intermediaries rather than addressing the fact that the Act is ambiguous and out of date with regard to the many forms that intermediaries may take in delivering insurance products to consumers. Outsourcing and partnership models are testing the boundaries of the current Act. Cell captives are increasing in importance in the industry, yet the Bill does not address these models. It defaults to looking only at previous binding arrangements without looking ahead to create an enabling environment in which innovation and competition can flourish. -3-

We have dealt to some extent in our submissions with the position of the underwriting manager, but are advised that SAUMA (South African Underwriting Managers Association) will be making a separate submission and presentation to the Committee on this model in light of the proposals made in the Bill.

PARALLEL PROCESSES ON SECTION 48 AND RELATED ISSUES

Against the background to the Bill, the SAIA wishes to highlight the existence of several other parallel, discrete processes which are currently underway and which will impact the future regulation of intermediary relationships in the short-term insurance industry. These are:

 Consumer Credit Insurance Panel of Enquiry – the SAIA and the Life Offices Association commissioned an enquiry headed by Judge Peet Nienaber into industry practices relating to consumer credit insurance. The resultant report, which has already been presented to the Committee, National Treasury, and the Financial Services Board, makes significant recommendations relating to the current Section 48 of the Act, which are worthy of being taken into consideration in the Bill process.  The SAIA has briefed National Treasury on inter alia intermediary and remuneration structures in the short-term industry. This comprehensive review considers the very structures which are the subject of the Bill.  The proposed Discussion Paper under development by National Treasury which will look at all issues relating to intermediaries in the short-term sector and which we are advised will be available early next year.

We submit that it makes more practical sense to consolidate these three processes or, if that is not possible at this stage owing to other more pressing issues, to at least utilise the valuable work and research that has already been done to avoid piecemeal, confusing legislation that will require more revision, which will undoubtedly be the case should the Bill be considered in isolation.

Notwithstanding all these factors, this submission has been considered and approved by the Board of the SAIA and carries the full mandate of our Board.

CONCLUSION

In conclusion, the legislator’s attempts to ameliorate the inconsistencies and/or deficiencies in the current Act are welcome.

It is however cautioned that in its current form, the Bill will create a greater degree of confusion, unless the legislator addresses the concerns raised in this submission and the parallel processes referred to. This confusion will ultimately defeat the good intentions outlined in the Memorandum on the objects of the Bill.

We again record our concerns relating to the inadequate time made available for comment, and the lack of prior consultation with the industry before tabling the Bill with Cabinet and the Committee. At the least, such a consultative process must be followed prior to implementing any changes set out in the ultimate Amendment Act. -4-

Yours faithfully

Barry Scott Chief Executive [email protected]

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