INSURANCE Bill 2015 – AN APPRECIATION  

1.

 

This Bill is part of the Twin Peaks Regulatory structure for Financial Services. The FSR (Financial Sector Regulation Bill) provides for two regulatory authorities – a Prudential one and a Market Conduct one. The Insurance Bill deals with the Prudential Regulation of Insurers – Long Term and Short Term. This regulation is largely in terms of the SAM (Solvency Assessment and Management) framework and a governance framework. Of particular interest are the provisions re fit and proper requirements for directors and for group ownership structures.
2. It would also appear that in the course of defining insurance business or, rather the business of carrying on insurance, the common law basis of insurance in terms of contract/agency is superseded. In this context it is important to note the definitions of group and individual business. Group business is business in respect of a voluntary association governed democratically or of an employer. Individual business includes policies administered on a group basis. It should be noted that the concept of carrying on insurance business may carry over into the intermediary arena but not, it appears, in respect of binder holders.
3. At bottom however the Bill leaves in place those parts of the existing Insurance Acts and FAIS which deal with Market Conduct .In that context we have already seen the RDR (Retail Distribution Review) recommendations and one may expect over time umbrella market conduct  legislation ‘codifying’ the law on market conduct.
4. Specific sub classes of Long and Short term business are specified. Thus Schedule 1 of the Insurance Bill – Laws Amended- says in relation to the Long Term Insurance Act 1998, under ‘this Act …..(2). Any reference to a specific type of policy under this Act must be deemed to be a reference to the class or sub class of insurance business set out in Schedule 2 of the Insurance Act 2015 that best corresponds to that type of policy. Thus Assistance business would probably correspond to Funeral. There is also a specific sub class for Credit Life.
5. Very importantly for the future however, one must note that this is ‘framework’ legislation. The details will be filled in (in the interest inter alia of dealing with financial services issues expeditiously) by regulation after consultation with interested parties but without further recourse to the legislature. This raises ‘rule of law’ issues which perhaps need to be debated elsewhere .Separation of powers is effectively absent ….legislator, judge, jury …
6. Regarding Pensions (wholesale) business this bill applies to the activities of insurers. One may expect the activities of funds and administrators to be dealt with largely in terms of market conduct legislation.
7. One may expect market conduct regulation to follow the same model of framework   legislation and regulatory infill. That is something to look forward to!
8. The Bill impacts very largely on insurers. To the extent that it raises the compliance burden disproportionately on small and specialist insurers (and cells), it may lead to higher costs and consolidation. Because of the ‘judge and jury ‘environment, it may also reduce insurer’s appetite for risk, especially since it also appears that ‘judgement ‘may be retrospective.
9. Balancing that however is the prospect of Micro insurance with a significantly lighter regulatory burden. The Bill makes provision for Micro Insurance business in terms of the National Treasury’s Policy Document of 2011 and the Update on Micro Insurance of February 2015.Micro insurance will notably be a composite license.
10. Given faster, less ‘appealable’ action, in this environment one might expect business models deemed undesirable to be rapidly regulated away.
11. Absent the regulations it is difficult to do other than to welcome the implementation of Twin Peaks in the prudential sphere.
12. Implementation of the Bill is set for 1 January 2016.

 

J Solomon

2015.09.08