Short Term Policy Holder Protection Rules

Over the last decade the protection of consumer rights has received much attention from law makers. The National Credit Act had huge implications on the way credit is granted in South Africa. All financial institutions, including short-term insurance companies are subjected to various acts – all to protect the consumer of financial services.

Now the Consumer Protection Bill is being finalized and it is said that this bill will be applicable to “all transactions taking place in South Africa.” A transaction can be defined as “the supply of goods or services in exchange for consideration”, so it will pretty much cover all transactions.

The Consumer Protection Bill and the Insurance Industry

The insurance industry has been granted a reprieve from implementing the Consumer Protection Bill for the time being. When the Consumer Protection Bill becomes law both the Long- and Short-Term Insurance Acts will have to be brought in line within a given period. In the meantime there are a number of mechanisms that provide the consumer with protection – one of them being the short-term policyholder protection rules.

What are the Policyholder Protection rules?

These rules forms part of the short-term Insurance Act and new rules replaced the existing ones in September 2004, under Section 55 of the Short Term Insurance Act 53 of 1998. The rules are applicable to all types of short-term insurance such as car-, household – and liability insurance.

The policy protection rules were implemented with the purpose of ensuring that policyholders are given sufficient information to enable them to make sound decisions regarding insurance products. According to the rules insurance must be based on sound principles and protect the rights of the insured public. These rules must not be confused with the rules of the FAIS act. (Financial Advisory and Intermediary Services Act.)

Below we discuss the most important rules that all insured persons should be aware of:

Direct Insurance Marketers

Part three of the Policyholder Protection rules deals with direct marketers – this refers to insurance companies selling directly to the public, not through an insurance broker or other intermediary. Direct insurance include selling insurance on the internet, through call centres and also through direct mailing.

The service provided by direct marketers must always be: “honest, fair, with due skill, care and diligence.”

The information provided to the insured must be in plain language to avoid any misunderstanding.

All written and verbal communications between the insurance company and the insured person must be kept and stored in a place safe from destruction. Direct insurance are mostly concluded orally and the electronic recordings are included in this rule.

Any verbal disclosure must be followed up in writing (within 30 days) and must include the following:

  1. registered name and contact details of the insurance company;
  2. full details of the insurance policy – which includes the benefits, restrictions or penalties, terms and conditions, waiting periods, excesses;
  3. commissions, fees or charges;
  4. details regarding the monetary obligations of the insured, including when and how premiums must be paid, the consequences if premiums are not paid, whether premiums can be increased and on what basis;
  5. details of the claims procedure;
  6. details of the complaints procedure, including details of the short-term insurance ombudsman.

Polygraph, lie detector or truth verification tests

In terms of the new rules the insurance company may not force a policyholder to take any of the above tests. An insured person can voluntarily undergo the test – but – even if the insured fail the polygraph test the insurance company is not allowed to repudiate the claim based on the outcome of the test.

Termination of insurance policy

An insurance company must give a policyholder 30 days notice should it wish to cancel the policy.

Rules regarding the rejection of claims

The insurance company must advise a policyholder, in writing, of the reason(s) why a claim is being repudiated. The insured must also be informed of his right to make representations against the decision within 90 days, directly to the insurance company.

Premium payment grace period

Short-term insurance policies must include a period of grace for the payment of monthly premiums of no less than 15 days after the due date of the premium.

Signing blank or uncompleted forms

The signing of blank or uncompleted insurance applications or insurance- related forms are not allowed in terms of the policyholder protection rules.

If you wish to read the full copy of the policyholder protection rules it can be found on the internet. Knowing your rights is part of responsibility of an informed South African consumer.