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South Africa: FSCA exempts all independent intermediaries authorised by insurers to collect premiums directly from restrictive remuneration provisions

  • Legal Development 5 November 2020 5 November 2020
  • Africa

  • Insurance & Reinsurance

On Friday 30 October 2020, the Financial Sector Conduct Authority ("FSCA") issued the following Insurance Notices:

  • FSCA Ins Notice 19 of 2020 – Exemption for direct collection of premiums by certain independent intermediaries and Short-Term Insurers under the Short-Term Insurance Act 1998 and Regulation 5.1(1) and (2) of the Regulations under the Short-Term Insurance Act; and
  • FSCA Ins Notice 20 of 2020 – Exemption for direct collection of premiums by certain independent intermediaries and Long-Term Insurers under the Long-Term Insurance Act 1998 and Regulation 3.2(1) and (2) of the Regulations under the Long-Term Insurance Act, (collectively, "the Notices").

The Notices were issued subsequent to a public consultation process and contain exemptions for certain intermediaries as well as long-term and short-term insurers from section 49 of the Long-term Insurance Act 52 of 1998; from section 48 of the Short-term Insurance Act 53 of 1998 and from the related regulations which regulate the acceptance of consideration by intermediaries.

The exemptions contained in the Notices enable the payment of additional financial compensation over and above statutory regulated commission to independent intermediaries as consideration for the direct collection of premium subject to compliance with certain conditions. The term "direct collection of premium" is defined in the Notices to mean the accounting for premium performed by a third party on behalf of an insurer, with the purpose of facilitating the collection of a premium from the premium payer directly into the bank account of the insurer, and without the third party receiving or holding such premium or having any authority or rights in respect of the actual premium in the insurer’s bank account into which the premium is collected.

Some of the noteworthy conditions include:

  1. The independent intermediary must notify the FSCA at least 30 (thirty) days prior to entering into an agreement to perform direct collection of premiums of its intention to do so. The notification must contain details of the fee or remuneration payable to the independent intermediary and be submitted to the FSCA in the prescribed form and manner;
  2. The consideration that the independent intermediary accepts for performing direct collection of premium must be reasonable and commensurate with the services being performed; also taking into consideration the nature of the function and the systems required to perform it and may not be based on a percentage of the total premium amount payable to or received by the insurer;
  3. The independent intermediary must at all times have appropriate systems and data integration capability to ensure that the relevant insurer is readily able to access any relevant data in respect of any direct collection of premiums on behalf of the relevant insurer at any given time;
  4. The independent intermediary must have appropriate and regularly tested business continuity and disaster recovery plans to mitigate risks arising from potential failures in its direct collection of premium administration infrastructure and proper record keeping procedures; and
  5. The insurer must have the resources and ability to exercise effective oversight over the independent intermediary performing the direct collection of premium services on an ongoing basis; and
  6. The insurer has to satisfy itself of the adequacy of the independent intermediary’s governance, risk management and internal control framework, including the intermediary’s ability to comply with applicable laws.

Any failure by an independent intermediary or an insurer to comply with the conditions referred to in the Notices will result in the exemption no longer being applicable to that independent intermediary or insurer, as the case may be.

The Notices (as well as the comments received from stakeholders pursuant to the public consultation process) can be accessed here

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