Deputy Speaker, I should have lobbied the hon Seaton to ensure that we could get a productivity bonus for bringing so many Bills here.
The Insurance Laws Amendment Bill, 2008, is very similar to the Financial Services Laws General Amendment Bill, the one that has just been described by the hon Bekker as an omnibus Bill, because it seeks to address urgent technical and regulatory issues in both the Long-term and the Short-term Insurance Act.
The amendments are contained in one amending Bill as many of the provisions are similar in the two pieces of legislation. In broad terms, the proposed amendments to the Long-term and the Short-term Insurance Acts are required in order to close the regulatory gaps identified in existing statutes; to effect improvements to certain provisions of existing legislation; and to update outdated references.
The amendments, firstly, expand the written and reporting obligations of independent risk assessors such as auditors and statutory actuaries to enhance transparency in corporate governance of client funds, thereby strengthening consumer protection and industry oversight.
Secondly, they improve risk management rules for insurers in a move towards risk-based supervision, with the main objective of promoting a more stable financial system - particularly relevant against the backdrop of recent financial market turmoil - as well as an improved allocation of regulatory resources in the esteemed Financial Services Board, allowing for more effective supervision of our financial services sector.
Thirdly, they protect customers by regulating and clarifying the relationship between an insurer, on the one hand, and an outsourced person, who provides service functions between the insurer and the client, on the other, in an instance where the insurer's liability may be varied by the insurer giving authority to the third party to take on, or to manage, the insurance business.
Fourthly, they provide additional regulatory protection for consumers of assistance business policies; and, lastly, clarify the regulatory demarcation of products between health and financial services to ensure alignment between health and financial sector policy.
In closing, I would like to remind this House that the proposed amendments are crucial to strengthening consumer protection, enhancing financial stability and removing legal uncertainty across the Acts.
I would again like to convey my very special thanks to the portfolio committee under the steady hand of its Chairperson, the hon Nene. The committee consistently provides an insightful review of legislation placed before it for consideration and I hereby request that the House supports the Insurance Laws Amendment Bill 2008. I thank you.
Deputy Speaker and hon members, as has been said, there are similarities between the two Bills we are dealing with.
In this case we are dealing with the insurance industry and, as has already been said, the insurance industry plays an important role in the economic cycle as it provides that mechanism of reallocation and pooling of resources, so that provision is made for certain eventualities and sharing of risk.
If there is a compelling argument for state intervention that is accepted by even the most ardent market fundamentalists, it is that of capital market imperfection. This is classified as a special case of market failure and, therefore, it is of the utmost importance that the developmental state keeps a constant watch over the capital market in the interest of the economy and the population at large.
In the ANC's strategy and tactics we speak of a national democratic society that has a mixed economy with state, co-operative, and other forms of social ownership in private capital. The balance between social and private ownership of investment resources should be determined on the balance of evidence in relation to national development needs and concrete tasks of the national democratic revolution at any point.
It goes on to state that in this regard the state will relate to private owners of investment resources in the context of national objectives to build a better life for all. Through its various capacities the state would encourage socially beneficial conduct on the part of private business. Similarly, through such capacities it will ensure that these investors are able to make reasonable returns on their investments.
In response to these commitments, the ANC-led government continues to consistently align the regulatory framework in the insurance industry to the current needs and conditions of this national democratic society.
The Bill before this House today seeks to strengthen the legislative framework for a sound and well-regulated insurance services industry and to provide financial market stability to the industry players, as well as consumers. This has been necessitated by a number of factors, among which has been the gaps that have been identified in existing statutes during the implementation - particularly the Long-term Insurance Act of 1998 and the Short-term Insurance Act of 1998, commonly known as Act 52 of 1998 and Act 53 of 1998, respectively.
It also seeks to clarify the demarcation between health insurance and medical schemes, as defined in the relevant legislation, which my colleague, Ntombikayise Sibhidla, will be talking about.
It further updates the outdated references to applicable legislative provisions, such as the Companies Act of 1973, which has since been amended by the Corporate Laws Amendment Act of 2006, as well as the Medical Schemes Act of 1998, which is Act 131 of 1998.
An important feature of this amendment is that of consumer protection, particularly in the long-term insurance industry. Clause 16 introduces a provision that ensures that policies sold to clients are actuarially sound. Subsection 1 of this section clearly states that insurers shall not enter into any particular kind of long-term policy unless the statutory actuary is satisfied that the premiums, benefits and other values thereof are actuarially sound and that the awarding of bonuses to policyholders is done in accordance with the principles and practices of financial management of the long-term insurer to the absolute satisfaction of the statutory actuary.
A further protection of consumers comes in the form of the limitation of remuneration to intermediaries, which has been the subject of discussion between National Treasury and the industry for a very long time, and has culminated in the signing of the statement of intent some time last year. This is given legal effect through clause 17, which substitutes section 49 of the Long-term Insurance Act of 1998. It states that all commissions and/or remuneration shall only be payable in terms of the regulations. This is intended to ensure that the remuneration of intermediaries does not unnecessarily prejudice the policyholders due to the asymmetry of information.
In the interests of our participatory democracy, an open process of consultation between the industry and National Treasury was allowed to continue even after the department had informed us that most of these matters had been adequately canvassed. The committee did this because when the department briefed the committee, most submissions indicated that they were not given enough time to consult with their constituents.
While we agree that the consultation between the department and the stakeholder is separate from the parliamentary process, the two are inextricably linked. As a result, when the industry raised concerns regarding a lack of consultation with National Treasury and the Financial Services Board, we proposed further engagement which culminated in a workshop that attracted a very broad spectrum of stakeholders and resulted in some substantial amendments to the Bill as it was originally drafted. This, to a great extent, assisted our process in as far as consultation was concerned.
Whilst this process was under way, the committee reopened the process so as to allow anybody that may have missed the opportunity to make submissions to do so. During this period the committee did not receive any additional requests, even though there were media reports in this regard and all those who had concerns were duly informed of the extension. I must say that even though the executive had discharged its responsibility in respect of consultation, the department and the Financial Services Board continued to engage with the industry, going the extra mile, if I may say so.
I must say that I was surprised to learn that one player in the industry still feels that the committee did not comply with section 59(1) of our Constitution, which enjoins the National Assembly to facilitate public involvement in the legislative and other processes of the Assembly. I want to submit before this House that the only people that still do not have a voice are the consumers, and not the industry.
I find it very strange that the stakeholder that had an opportunity and resources to make submissions chose not to make a submission to the committee, but to resort to unwarranted legal recourse after the Bill had been passed by the committee. I would like to submit that, in the absence of consumer activism in South Africa, the people's Parliament must extend the service to our constituency offices and deeper into our communities.
Angivume ukuthi uma kukhona lapho sehluleke khona ukulalela imizwa yabantu ngokwale ntando yeningi ekudingideni lo Mthethosivivinywa, kulapho singafinyelelanga kubantu bonke abathintekayo yilo Mthethosivivinywa, ikakhulu labo abasemakhaya lapho kungafinyeleli ubuchwepheshe besimanje namaphephandaba, lapho sikhangisa khona uma kuzoba nezithangami. Mhlawumbe ngokuzayo kuyofanele siye kubo abantu bakithi, siyeke ukukwitiza isiNgisi esingapheli uma sishaya imithetho kanti ibathinta ngqo. (Translation of isiZulu paragraph follows.)
[Let me admit that there were instances where we failed to listen fully and democratically to the people's inputs concerning this Bill, and, as a result, we did not reach all those that are affected by this Bill, especially those in remote rural areas where modern technology and newspapers cannot be easily accessed, which are the media that we use to advertise our public hearings. Maybe next time we will need to go to our people and stop speaking in a foreign tongue - English - when we pass the laws that directly impact on them.]
As I conclude, allow me to share with this House the evidence of consultation that saw some measurable results. A letter written by the Aids Law Project on 4 June 2008, in which a number of issues were raised, and a subsequent one which followed on 12 June 2008, in which they expressed their appreciation to the department after their concerns were addressed, are just two examples.
I would like to thank everyone who participated in this process for their valued contribution, particularly National Treasury officials, the Financial Services Board, the Department of Health, the medical schemes industry, the insurance industry and the committee members who continue to be overworked and underpaid. The ANC supports the amending Bill. I thank you.
Chairperson, the concept of insurance is very simple. One party promises to compensate another in the event of a particular circumstance. The earliest authenticated insurance contract, a marine insurance contract on a ship, the Santa Clara, was signed in Genoa 661 years ago, in 1347.
Since then, the insurance industry has evolved in complexity and into a significant intermediary in the international economic system. The insurance industry in South Africa performs an important role in our economy by sharing various risks.
Given the industry's size and financial reach, instances have arisen where the contract between the insured and the insurer has been substantially one- sided. An example is the excessive withdrawal penalties that were applied to underwritten retirement annuity funds. In many instances, members received no benefit at all from the funds invested because they did not fully understand the terms and implications of investments underlying the retirement products that they had purchased. The Insurance Laws Amendment Bill seeks to strengthen and provide stability to the regulatory framework applicable to the insurance services industry.
The Association of Collective Investments, the Investment Management Association and the Linked Investment Service Providers Association are merging, and the Life Offices' Association is considering membership of the new grouping. A combined entity is likely to present a far stronger lobby group in favour of service providers in the industry.
It is important to ensure that the regulator is sufficiently equipped to participate as an equal on this playing field. Public participation in respect of the Bill indicated that dialogue between the industry and the regulator needs to intensify in the interests of consumers.
The Bill places restrictions on dividend payments that would result in the failure or likelihood of failure of the insurer. This should prevent insurers from making payments to shareholders under circumstances where they cannot meet their obligations to policyholders.
Binder agreements are regulated so that the insurer retains the underwriting risk and policyholders are made aware of who exactly is providing the cover. This should prevent various parties in the service chain from disclaiming responsibility in the event of a claim.
Administrators bulking bank accounts in the retirement fund industry is an example of how agents can seek to profit off assets that belong to others. Where profits are made as a result of positive claims experience from members, the benefit should accrue to members in the form of reduced premiums.
This does not always happen. Where profits are shared between the underwriter and various participants in the service chain, perverse incentives can arise where claims are delayed or not submitted in order to attract a share of the profits. This is detrimental to consumers who are the actual source of profit. The Bill restricts profit-sharing to certain circumstances.
In consultation with the Minister of Health, the Minister of Finance may make regulations identifying a particular type of insurance contract as a health policy. This highlights the tension between the need to develop an effective healthcare system and the need for individuals to make decisions on the most appropriate level of health cover applicable to their own circumstances. There is no reason why an individual, covered under a medical scheme and participating in the process of cross-subsidisation, cannot also be empowered to purchase an appropriate health insurance product. The courts appear to agree. An area that requires further attention is that of consumer credit insurance. A recent report on the subject was completed without inputs from consumer organisations and never addressed the fundamental question of why credit insurance is required at all, given that interest rates are usually set at a relatively high level to compensate for the higher incidence of default.
Retail stores selling consumer goods have been accounting for insurance premiums upfront and thus inflating their profits. The question arises as to how much profit is generated off the back of credit insurance and whether this is desirable or in the interests of consumers. The matter requires further investigation. The DA supports the Bill. Thank you.
Chairperson, the Bill being debated today amends the Long- term Insurance Act and the Short-term Insurance Act. In amending these Acts, it aims to achieve a more precise demarcation between them and the Medical Schemes Act of 1998.
The amendments contained in the Bill are needed to update the existing laws, close certain regulatory gaps and generally improve the legislative framework. The last-mentioned is very important for a sound and well- regulated insurance services industry, and to provide financial market stability to the industry and consumers.
The Bill is the result of wide-ranging consultation between the insurance industry and intermediary bodies on conflicts of interest as well as consultation with the Department of Health and the Council for Medical Schemes on a demarcation between health policies and medical schemes.
In respect of the latter, the IFP fully supports the agreement that was reached to the effect that health insurance policies will be regulated solely in terms of the Long-term and Short-term Insurance Acts.
The regulations for this demarcation will be promulgated by the Minister of Finance in consultation with the Minister of Health and after consultation with the Council for Medical Schemes and the Financial Services Board. The IFP supports this inclusive process.
The IFP welcomes the fact that information on health policy products will have to be filed with both registrars and that they will enforce the regulations in terms of their respective Acts.
In conclusion, the successful implementation of the Bill will be determined to a large extent by whether a close working relationship can be established between Treasury, the Department of Health and the relevant registrars. The IFP certainly hopes that that will be the case. Thank you.
Chairperson, many South Africans contribute large sums of their monthly earnings to insurance funds. As experienced by many, while you tend to pay regularly, when it comes to claiming insurance you are hassled with technicalities, incidents that the insurance does not cover, and so forth.
The MF is pleased that this Bill exists to govern the system of insurance and respects that the amendments to this Bill serve to close the gap in respect of shortfalls and further adequately addresses both short-term and long-term insurance.
Insurance fraud has also made itself known in our society and the MF considers it crucial for us to find ways to sniff out these perpetrators to secure our people and the insurance community. The MF supports the Insurance Laws Amendment Bill. Thank you.
Chairperson, the ANC, at its 52nd national conference, resolved that a developmental state like ours should maintain its strategic role in shaping the key sectors of the economy. It further acknowledged that the interventions by the state will differ, but we need to bear in mind that our strategic objective is to strategically intervene in these sectors to drive growth, development and transformation of our economy.
The Bill before the House is premised on an understanding that for us to deliver to the principle of a better life for all, we need to regulate the financial sector for the benefit of consumers, investors and society at large. Without a clear regulatory framework, the state loses large amounts of revenue, which can be used to better the lives of our people.
The Insurance Laws Amendment Bill proposes amendments to the Long-term Insurance Act, Acts 52 of 1998, and the Short-term Insurance Act, Act 53 of 1998. The proposed amendments are required in order to update existing legislation, close regulatory gaps identified in existing statutes and effect improvements to certain provisions. The primary objective of the Bill is to strengthen the legislative framework for a sound and well- regulated insurance services industry and to provide financial market stability to industry players as well as consumers.
In the insurance industry there are a number of problems with regard to persons rendering certain services on behalf of insurers. Here I am talking about administrators, funeral parlours and brokers. The problems are that agreements between insurers and the insured persons are not always concluded in writing and sometimes do not contain terms and conditions of these agreements. This impacts negatively on the lives of the poorest of the poor, while the industry on the other hand is multiplying its profits.
The other problem is that policyholders may not be aware of the name of the insurer who is liable, under the policy, for the benefits. Izikhathi eziningana siyezwa ukuthi abantu bakithi uma beyothenga ezitolo ngabe ngezefenisha noma izimoto, bazithola besayinda amaphepha omshwalense ngaphandle kokuthi banikezwe ithuba lokuzikhethela umshwalense abawuthandayo. (Translation of isiZulu paragraph follows.)
[In most cases we hear that when our people go to buy something in the shops, it could be a furniture shop or even a garage to buy a car, they find themselves signing insurance papers without being given a chance to choose the insurance that they like.]
The amendment to the binder agreement seeks to address all these problems and protect the consumer. Amendments to the Long-term Insurance Act regulations provide for a policy process by empowering the Minister of Finance to make regulations identifying a type or category of contract as a health policy and may prescribe matters relating to the design and marketing thereof.
It further proposes that when the Minister makes these regulations, he must have regard to the need to ensure the sustainability of the medical scheme; the need to ensure access to health care services; limitations on the liability undertaken by medical schemes; and the extent to which medical schemes are able or willing to provide certain services.
Certain products have been developed and are being offered by insurers, which could be considered to be the business of medical schemes. Examples of such products are: cover for medical costs incurred while travelling and other types of cover such as additional HIV cover or private ward cover. It is therefore necessary to provide for a framework to demarcate these products.
The amendments provide for a joint policy process between the Minister of Finance and the Minister of Health. The intention is to provide clarity through a policy resolution, rather than the current uncertainty that has led to legal disputes. I hope members are aware of the case between the Council for Medical Schemes and Guardrisk. The ANC supports the Bill. Thank you. [Applause.]
Chairperson, I'd spoil the agreement if I sought to add anything. I just want to express my sincere appreciation again for the diligence of the committee and for the fact that, as the hon Nene pointed out, they were able to bring the Bill into the parliamentary process formally and deal with the criticism from those who wanted additional representation. I think it speaks to the maturity with which the committee always deals with these matters and I think Parliament is well- served by the committee, as reflected in the debate this afternoon. Thank you very much.
Thank you, Minister. That concludes the debate. Are there any objections to the Bill being read a second time?
Debate concluded.
Bill read a second time.