Enhanced protection for financial customers: Proposed amendments to the 2017 Policyholder Protection Rules

This bulletin was prepared by partner Deanne Wood, associate Emma Alimohammadi and candidate attorney Alice Letsoalo.

The Financial Sector Conduct Authority (“FSCA”) has announced certain proposed amendments to the Policyholder Protection Rules (“PPRs”) for both life and non-life insurance.  The main objective of the draft proposed amendments is to give effect to enhancements that were made to the PPRs during 2017.  The proposed changes are aimed at further protecting financial customers.  We set out below a summary of the proposed amendments applicable to the PPRs. The amendments are still in draft form and so will not be effective at this stage.  

A summary of the proposed amendments 

Rule 1: Requirements for the fair treatment of policyholdersThe effect of this amendment is that insurers are required to ensure that their policies, procedures and systems ensure the fair treatment of policyholders.The addition of “system” is due to the increased reliance by insurers on technology in their operations. These systems play an integral part in all stages of the policy lifecycle.
Rule 2: Product designThe principles relating to product design will be extended to consider the longer-term objectives and potential outcomes for policyholders at the product design stage.The rule makes it clear that the board of directors of an insurer is ultimately responsible for the appropriateness of all products that are introduced in the market.Further, the proposed changes require insurers to establish and maintain a board-approved product design framework.  
Rule 2A: Microinsurance standards (in the non-life insurance PPRs) and funeral product standards (in the life insurance PPrs)  The proposed amendment proposes a deletion of the 12 month contractual term limitation applicable to microinsurance policies. The reason for the proposed amendment is to ensure an equilibrium between traditional insurers that offer funeral type products and microinsurers.  As a result of the proposed amendment,  traditional insurers and microinsurers are subject to the same requirements in regard to limitations on imposing waiting periods.
Rule 6: Determining premiums (and excesses – non-life insurance PPRs) This rule is amended to clarify that administration fees are not allowed before or after the inception of the policy. 
Rule 10: Marketing This rule is amended slightly to expand on advertisements that refer to a loyalty benefits, no-claim bonuses, or rebates in premiums. The amendment ensures balanced advertising in relation to the primary benefits of the policy being advertised, prohibits the use of the advertisement as an inducement and requires clear communication on suitability.  
Rule 11: Disclosures  Insofar as “bundled products” are concerned, the amendment imposes an obligation on insurers to provide the policyholder with additional information where a policy is entered into in connection with other goods or services. 
Rule 12: Intermediation and distribution The addition of Rule 12.1A requires insurers to ensure that they have “dynamic and responsive processes and controls over [their] chosen distribution channel”. 
Rule 14: Monitoring and review of product performance The amendments propose that insurers regularly review product performance to ensure that products are distributed and remain suitable to the target market. 
Rule 17: Claims management The proposed amendment requires an expansion of the rule so as to allow reasonable processes and time periods within which a policyholder can lodge a claim.This is in response to the outcome of FSCA’s investigations revealing that policyholders were given unreasonably short time periods within which to lodge a claim.  The FSCA found that this has often been used as a ground to repudiate the policy where a claim is not lodged within the required time period. 
Rule 18: Complaints management The proposal is to remove the distinction between a “reportable complaint” and a “non-reportable complaint”. This means that this rule no longer limits complaints to only those which are “reportable”. 
Rule 19 (ST) / Rule 20 (LT): Termination of policies The amendment proposes the insertion of a provision insofar as policies including loyalty benefits are concerned.  The proposed provision records that in the event that this type of policy is terminated due to the death of a policyholder, the accumulated value as per the agreed contractual date must be paid to the estate of the policyholder or nominated beneficiary.