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.