The licensing of insurers under the Insurance Act, 2017 will play a much bigger role in the regulation of their conduct than under the previous laws where very broad categories of insurance business were licensed. The licence classes and sub-classes of insurance business are broken down in much finer detail. For instance, things like individual life policies are licensed separately from group life policies and personal lines and commercial lines business are separate sub-classes. The ability to carry on each kind of business will have to be demonstrated. There are thirteen sub-classes of non-life liability business. The fact that you can conduct professional indemnity business does not mean you will get a licence to do product liability business. Consumer credit is a different class from trade credit because they require entirely different underwriting skills. Licences may be subject to a number of conditions dealing with the persons who may conduct the particular business, the required reinsurance arrangements, prohibited policy terms, limits on benefits, limits on premiums, financial soundness provisions and transformation objectives and plans.
There is a very clear distinction between life insurance which covers life and disability risks and investment products, and non-life insurance which is strictly indemnity insurance covering loss or damage or costs incurred by the policyholder or beneficiary.
Non-life insurers can only insure disability or death events caused by an accident. Non-accidental health events can be covered as long as the policy does not do the business of a medical scheme defraying medical expenses (save for the demarcated products). Stated benefits cover will therefore have to be insured under a life licence. Non-life group personal accident and health policies will only provide limited cover for accidental death and disability, and the “costs or loss of income resulting from a health event” other than medical expenses.
Significantly the use of master policies as we know them will fall away. A group policy can only be issued to a “group” as defined. This includes an employee group and insurance for members of a medical scheme as non-life business, or members of a pension fund as life business. For the rest you have to show that the group is an autonomous association of persons (a self-standing association); united voluntarily to meet a common shared economic or social purpose (not just obtaining insurance but having some specific unifying purpose); and the association must be democratically controlled which implies formal membership and periodic meetings to appoint the office bearers. The interesting question is whether a church is democratically controlled because this will have major effect on funeral business.
Insurers can still issue a master policy if the individual insured are underwritten on a group basis to improve premiums and policy conditions. Insurers will have an individual relationship with the individuals with all the policyholder protection and FAIS implications of that situation.
Existing licences which are converted will give insurers the authority to do the business they were prudently and actively carrying on on the 1st of July 2018. For the rest, additions to licences and new licences will have to fit within the new categories and applicants must show the competence and financial soundness to carry on each particular kind of business. Licences can be granted, amended or withdrawn according to performance so these abilities must be nurtured and maintained.
Patrick Bracher – Norton Rose Fullbright
