The FSCA published FSRA Exemption Notice 1 of 2019 – Exemption of certain insurers from Rule 19 of the Policyholder Protection Rules (Long-term insurance) and Regulation 3.9a of the Regulations under the Long-term Insurance Act, 1998, on 22nd July 2019.
The purpose of this Notice is to exempt insurers that offer assistance policies, funeral policies or microinsurance policies from the requirements of Rule 19 of the Long-Term Insurance Policyholder Protection Rules (PPRs) and Regulation 3.9A of the Regulations under the Long-term Insurance Act, 1998 insofar as it relates to such policies. These insurers are, therefore exempt from following certain requirements when an individual risk policy is replaced.
What is Rule 19 of the PPRs?
Rule 19 of the PPRs (Rule 19) pertains to the requirements for replacements of individual risk policies. A replacement is when an individual risk policy is substituted, wholly or in part, with another individual risk policy or the termination or variation of an individual risk policy and the entering into or variation of another individual risk policy.
Rule 19 sets out the obligations of the replacing insurer in respect of replacements of individual risk policies, and it is from these requirements that insurers that offer assistance policies, funeral policies or microinsurance policies have been exempted.
The obligations of the Replacing Insurer (unless exempted)
- The replacing insurer must obtain confirmation from the advisor that the policy constitutes a replacement policy before entering into the policy;
- If the policy is a replacement, the replacing insurer must request a copy of the Replacement Record of Advice (RPAR) from the advisor that addresses the record of advice requirements set out in the General Code of Conduct;
- Within 14 days of receiving the RPAR the replacing insurer must:
– provide the insurer of the replaced policy with a copy of the RPAR; and
– a senior manager of the replacing insurer must confirm in writing that the RPAR complies with the replacement disclosure requirements of the General Code of Conduct to indicate that the advisor took reasonable steps to satisfy himself or herself that the replacement policy is more suitable to the policyholder’s needs than retaining or modifying the replaced policy.
- If at any given time the replacing insurer establishes that the advisor failed to disclose to the insurer that a policy is a replacement policy, the replacing insurer must report such non-disclosure to the FSCA;
- If the replacing insurer becomes aware of the non-disclosure within a period of 6 months from the date on which the insurer entered into the replacement policy, the replacing insurer must immediately notify the client of their right to cancel the replacement policy within 31 days from the date of being notified.
What is Regulation 3.9A of the Regulations under the Long-term Insurance Act, 1998?
Regulation 3.9A governs the criteria for commission payable to advisors in respect of replacement individual risk policies. In terms of this Regulation, an insurer must not pay any commission in respect of a replacement policy until it has confirmed that the requirements of Rule 19 have been met; or if the insurer has already paid such commission then the payment must be reversed until confirmation is received in line with Rule 19 of the PPRs.
How will FSRA Exemption Notice 1 of 2019 affect FSPs?
The Exemption Notice takes effect on 1 September 2019. The commencement of this notice means that insurers that offer assistance policies, funeral policies or microinsurance policies will not be required to comply with Rule 19 of the PPRs and Regulation 3.9A of the Regulations under the Long-term Insurance Act, 1998 in so far as it relates to these types of policies.
Although the FSCA has granted an exemption relating to these types of policies to insurers, advisors are reminded that they must still comply with the FAIS requirements relating to replacements and should maintain internal processes and controls when replacing policies. An advisor must ensure that the replacement policy is to the client’s ultimate benefit. All discussions and advice provided to the client must be reduced in writing and documented on the Record of Advice.
 Section 9(1)(d) of the General Code of Conduct
 Section 8(1)(d) of the General Code of Conduct