New insurance laws allow for micro-products

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New and amended legislation governing the insurance industry provides, among other things, for user-friendly micro-insurance products and greater protection for policyholders, including a 48-hour turnaround time for funeral policy payouts.

The Insurance Act, which came into effect on July 1, was passed by the National Council of Provinces in December. It brings changes to the Long-Term Insurance Act (LTIA), Short Term Insurance Act (STIA) and the Policyholder Protection Rules (PPR) for both long-term and short-term insurance, creating both challenges and opportunities for existing insurers and providing for licensed micro-insurance products from a new class of micro-providers.

Johan Ferreira, the legal and compliance officer for Africa Unity Life says: “A number of new products can be provided under a micro-insurance license. Insurers will go through a process with the Prudential Authority to convert their current licenses and, if part of their strategy, apply for a micro-insurance license, which can include a number of different life and non-life classes of insurance as set out in Schedule 2 of the new Insurance Act.”

The changes will make micro-insurance products (traditionally funeral policies) more accessible, affordable and fair for consumers, will introduce standards for these products, and provide a regulatory framework that will make it easier for low-income earners to access insurance.

They also aim to turn informal insurance providers into formal, regulated and resourced insurance providers.

The Insurance Act introduces new authorization classes for the industry. Under this Act, micro-insurers may offer life and non-life insurance. Life insurance includes classes such as credit life insurance, risk insurance, and funeral cover. Non-life insurance includes motor insurance, property insurance, legal cover, as well as accident and health insurance.

“Insurers will have a blank canvass to roll out innovative products, subject to products standards. These standards protect customers in a number of ways, such as stipulating a maximum term of cover and ensuring shorter waiting periods. Active policies written under a traditional license will not be affected at this stage unless transferred into a micro-insurance license,” says Ferreira.

“South Africa is a unique country and we need something unique in order for everyone to manage their own risk, no matter how rich or poor you are. The Insurance Act and the micro-insurance product standards under the new Policyholder Protection Rules will make this a possibility. It is exciting times in the insurance industry,” says Ferreira.

MICRO-INSURANCE POLICIES: STIPULATIONS

  • Micro-insurance policies are limited to R100 000 for life insurance and R300 000 for non-life insurance
  • The maximum benefit for funeral policies offered by both micro-insurers and traditional insurers will be capped at R100 000
  • Only micro-insurers will be allowed to use the word “micro-insurance”.
  • Micro-insurers will not, without the approval of the Prudential Authority, be able to issue a life or non-life insurance policy that offers a loyalty benefit, no-claim bonus or rebate claim.
  • Micro-insurance policies and funeral policies may only provide risk benefits with no surrender value or investment elements.
  • A micro-insurance policy may not make any of its benefits subject to the principle of average (whereby if you are under-insured, you are paid out only the proportion to which you are insured).
  • Micro-insurance policies should have a contract term of not more than 12 months for life business.
  • Variations of the terms and conditions of micro-insurance policies are prohibited unless the insurer can demonstrate that reasonable actuarial grounds exist to justify the variation or change and that the variation will benefit the policyholder or member concerned.
  • Waiting periods are restricted to a quarter of the contract term for death or disability due to natural causes; no waiting periods are allowed for policies covering accidental death or disability or for credit risk policies; no waiting period may be imposed when a policyholder cancels a policy with one insurer in favour of one providing similar cover with another insurer.
  • Exclusions for pre-existing conditions will not be allowed for funeral and credit life classes of micro-insurance policies; exclusions for suicide will be allowed for a period not exceeding 12 months from the inception of the policy regardless of whether a micro-insurance policy or a funeral policy has been renewed during the 12 month period.
  • Excesses will only apply to non-life micro-insurance policies. Insurers may impose only one standard excess per risk event covered which may not exceed 10% of the benefit or R1000, whichever is lower
  • Micro-insurance and funeral policy claims must be settled within 48 hours after receiving all the necessary documentation
  • Insurers must reinstate policyholders on the same terms as previously, after a lapse. It is, however not mandatory for the insurer to reinstate a policy when it has lapsed.
  • Micro-insurance policies may not provide a benefit paid as a sum of money directly to a service provider.