The FSCA recently published two draft general exemption notices that affect premium collections by independent intermediaries. The proposed exemptions from certain sections of the Long-term and Short-term Insurance Acts and their respective Regulations were published together with FSCA Communication 22 of 2020 (INS) which sets out the background to the intention behind the proposed exemptions together with an invitation to comment on the draft.
In April 2019, the FSCA published a position paper that set out proposals on the future regulatory framework for the collection of insurance premiums. Masthead provided the FSCA with its comments in response to these proposals, which can be accessed via the Masthead member portal, Connect. The position paper confirmed that the FSCA strongly encourages a shift towards direct collections becoming the default rather than the exception. The proposals focused on the following:
- identification and classification of premium collection related activities and the determination of appropriate remuneration for such activities;
- criteria for qualifying intermediaries who wish to collect premiums on behalf of insurers;
- treatment of premiums as trust monies;
- reduction in the allowable period for the remittance of premiums by third parties; and
- interim remuneration arrangements for intermediaries who perform premium collection related activities in direct collection models.
The FSCA is of the view that the collection of premiums directly into the bank account of an insurer will significantly reduce the potential liquidity, credit and customer risks that have materialised in the past. FSCA Communication 22 of 2020 states that the FSCA’s intention remains to change the regulatory framework as alluded to in the position paper but as this will take time, the exemptions proposed would be an interim measure until the regulations are amended.
Draft Exemption Notices
Current regulation does not allow additional remuneration (other than commission) to be paid for premium collection activities that fall within the definition of “services as intermediary”. This means that if the arrangement of premium collection were to be shifted to a direct collection method, i.e. the premium is collected from the policyholder and paid directly into the insurer’s bank account, then the independent intermediary who previously collected the premium and performed various ancillary activities relating to such premium collection would no longer be able to be remunerated, other than by way of commission, for those activities which relate to premium collection. Because the FSCA wants to encourage a shift towards premiums being collected directly into the bank account of the insurer, they are proposing an exemption, subject to certain conditions, which would allow the insurer to remunerate the intermediary for those activities which the intermediary will continue to perform in relation to the collection of the premium, over and above commission, even though the intermediary no longer collects the premium.
The draft exemption notices introduces the term “accounting for premium” which describes the activities performed by an independent intermediary in support of the collection of premiums directly into the account of the insurer which includes technological systems of the independent intermediary that enable the direct collection method, and for which these independent intermediaries would be remunerated subject to conditions set out in the exemption – in addition to commission on the premium. In such instances, the insurers and independent intermediaries would be exempt from the commission regulations.
The draft exemptions contain strict conditions for insurers and independent intermediaries that rely on the exemptions. These conditions include requirements around remuneration for accounting for premium, governance requirements applicable to the technological systems that enable the direct collection method, reporting and oversight requirements.
To enable the FSCA to monitor and supervise the application of these exemptions, the notices require independent intermediaries to notify the FSCA at least 30 days prior to entering into any agreement to facilitate the direct collection of premiums of its intention to do so. The notice should also contain details of the fee or remuneration payable to the independent intermediary for performing direct collection of premiums.
Comments on the draft Exemption Notices may be submitted directly to the FSCA via email FSCA.RFDStandard@fsca.co.za by 15 May 2020 using the comment matrix.
Click on the links below to download and read the documents:
- FSCA Communication 22 of 2020 (INS) – Publication of draft exemption notices for direct collection of premium
- Comments matrix-Draft Exemptions from STIA and LTIA Regulations (Direct collections)
- Draft FSCA INS Notice X of 2020 – Exemption for direct collection of premiums LT
- Draft FSCA INS Notice X of 2020 – Exemption for direct collection of premiums ST
- FSCA Position Paper: Proposals on the future regulatory framework for the collection of insurance premiums (9 April 2019)