On 27 March 2019, the FSCA published an update on the development of a format for the replacement advice record (RPAR) in terms of Rule 19 of the Policyholder Protection Rules (PPRs) made under section 62 of the Long-term Insurance Act. Rule 19 of the PPRs sets out the prerequisites for a long-term insurer when entering into an individual risk policy that constitutes a replacement as defined in the PPRs.
Before an insurer enters into an individual risk policy that is a replacement, the insurer will have to obtain a copy of the record of advice (the format of which can be prescribed by the FSCA) that the intermediary is required to provide to the policyholder in terms of the FAIS General Code of Conduct and satisfy itself that the record complies with the disclosure requirements set out in the General Code.
The intended outcome of prescribing a consistent format for the RPAR is to ensure that the comparison done by an intermediary between a replacement policy and a replaced policy:
- is clearly and easily understood by the policyholder;
- contains a concise analysis of the suitability of both the replacement and the replaced policy;
- contains sufficient information regarding the replacement policy and the replaced policy to allow the policyholder to make an informed decision about the suitability and appropriateness of the respective policies; and
- sets out clearly why the intermediary is of the view that the replacement policy would lead to more favourable outcomes for the policyholder.
In September 2018, the FSCA invited public commentary on a draft template for the format of the RPAR. The comments received during the public consultation process have since been considered and the FSCA has recognised that the previous proposed template raised certain practical challenges in achieving the intended outcomes of prescribing a consistent format for the RPAR. After further engagement and consideration by the relevant stakeholders, the FSCA has now published a revised and streamlined version of the draft RPAR template for a final round of formal consultation. The closing date for submissions on the revised RPAR is 30 April 2019 and must be submitted directly to the FSCA by using the email address FSCA.INSRPARformat@FSCA.co.za.
In their update the FSCA also set out the next steps regarding the RPAR which include the FSCA’s intention to exempt insurers from compliance with Rule 19 in respect of the replacement of individual risk policies that constitute funeral policies or microinsurance policies as defined in Rule 2A of the PPRs, however the relevant disclosure obligations relating to replacements in terms of the FAIS General Code will continue to apply to these policies. Further the FSCA also advises that it will not be extending the period for compliance with Rule 19 of the PPRs and Regulation 3.9A of the Regulations beyond 1 July 2019. It cautions that insurers are expected to be ready and able to comply with these requirements by 1 July 2019 and failure to do so may result in regulatory action.
Although Rule 19 of the PPRs places a duty on an insurer, the ultimate responsibility of completing the RPAR in the format prescribed will rest with advisors. As the FSCA has indicated that this requirement will come into effect on 1 July 2019, financial services providers who provide advice in respect of long-term insurance products should review the processes which they follow when replacing individual risk policies to ensure that they can easily adapt to the new format and provide the insurer with the required information.