The Short Term Insurance Act

When most people see the word insurance and/or anything to do with law they think “boring.” Actually, law is a very interesting subject once you start scratching around.

Short Term Insurance includes things like car insurance, home owners insurance, house content insurance, liability insurance and medical insurance such as medical aid schemes. Most of us have one or more of these insurance products and it is therefore in our own best interest to know a little more about the legislation controlling the insurance industry.

Why was it necessary to introduce the Short Term Insurance Act?

Short term insurance is of public interest and the government has to make sure that the interest of the public is protected when it comes to issues of short term insurance. The Short Term Insurance Act no. 53 of 1998, as amended, makes provision for the registration of short term insurance companies and sets out certain measures to control the activities of insurance companies and their intermediaries – such as agents and insurance brokers.

The financial industry in South Africa, including banks and insurance companies, are heavily regulated. We may complain about this, but at the end of the day it is in our own best interest. When the credit and financial crises hit the world in 2008 our strict legislation helped in preventing our banks and insurance companies from going under, like so many worldwide.

The Financial Services Board

The Financial Services Board (FSB) is the supervisory body that monitors the short term insurance companies to ensure they abide by the act. Any person or company that provides insurance cover must the registered with the FSB and authorized by the Board to carry out insurance business.

Other laws impacting on the Short Term Insurance Industry

The Financial Advisory and Intermediary Services Act (FAIS) also play a big role in the control of short term insurance companies. A new act – The Consumer Protection Bill of 2008, which is referred to as the “sister act” of the National Credit Act, will bring about further controls. Government has given the insurance industry reprieve from this act for the time being – with the instruction that the Short Term Insurance Act be brought in line with the Consumer Protection Bill over the next 18 months.

The appointment of the Short Term Insurance Ombudsman has already provided a vehicle for the consumer to address his concerns and grievances with Insurance Companies. The wide publicity given to the ombudsman’s cases has made consumers in South Africa more aware of their consumer rights.

The Short Term Insurance Amendment Act of 2008

The amendments to the act dealt, to a large degree, with the financial control of short term insurance companies. Insurance companies must file financial statements and reports with the government according to prescribed ‘financial reporting standards’, similar to those in the Companies Act.

It also makes provision for the appointment of Auditors and how Audit Committees must be formed and controlled. Audit Committees must carry out additional functions as listed in the Companies Act.

The act stipulates the financial soundness requirements that an insurance company must comply with in terms of its liabilities and capital adequacy requirements. These requirements are calculated according to a prescribed method in Schedule 3 of the Insurance Act.

The amendments act also deals with misleading information and stipulates what information must be included when insurance companies advertise their products.

The amendments make mention of the fact that an insurance client is entitled to a copy of his short term insurance contract.

What is covered in the Short Term Insurance Act?

  1. The act makes provision for the appointment of a Registrar of Short Term Insurance and details his responsibilities.
  2. It regulates the registration process of short term insurance companies, including the application process and conditions.
  3. The business and administration of short-term insurers such as limitations on business, reinsurers, all the financial requirements such as financial statements, auditing, financial ratios, assets and liabilities, prescribed fees (an amendment in 2005), returns to be completed for the Registrar and winding-up procedures when necessary.
  4. Offences and penalties.
  5. Policyholder Protection Rules, an amendment made in 2004. These rules are of particular interest to the insurance clients and it may be worth your while reading through them.

The complete Short Term Insurance Act, The Financial Advisory and Intermediary Services Act and details of the Short Term Insurance Ombudsman is available on the Internet should you be interested in expanding your knowledge on this topic.