Binder agreements are agreements whereby a registered short-term insurer allows a third party to do one or more of the following on behalf of that short-term insurer:
- Enter into, vary or renew a short-term policy, other than a short-term re-insurance policy;
- Determine the wording of a short-term policy;
- Determine premiums under a short-term policy;
- Determine the value of policy benefits under a short-term policy;
- Settle claims under a short-term policy.
It has come to the attention of the Registrar of Short-term Insurance (Registrar) that, on occasion, the termination of binder agreements by short-term insurers has led to a situation whereby an intermediary continues to collect premiums for its own account and settle claims, thereby rendering insurance business without being registered as a short-term insurer in contravention of section 7 of the STI Act, placing policyholders at risk.
Termination of the binder agreement by the short-term insurer is also commonly accompanied by a unilateral cancellation of the book of policies administered by the binder holder. In these instances it has also been found to be the case that the requirements of Rule 7.3 of the PPR are not properly compiled with.
The enhanced reporting requirements outlined in the directive, that is available on the FSB website, are designed to improve the effectiveness of enforcement of compliance with Rule 7.3 of the PPR and to prevent the risk of unregistered insurance business following the termination of a binder agreement.
Short-term insurers are directed under section 4(2) of the STI Act to furnish the Registrar with information from the effective date of 1 April 2010:
- By completing a form prior to the termination of a binder agreement
This form is to be completed and submitted by the Public Officer of the registered short-term insurer to the Registrar’s office:
- If terminated by the insurer, 40 days in advance of the actual date of termination of the binder agreement’
- If terminated by the binder holder, within 2 days after receiving the notice from the binder holder.
- By completing a form prior to the unilateral cancellation of policies related to the termination of a binder agreement
This form is to be completed and submitted by the Public Officer of the registered short-term insurer to the Registrar’s office 30 days in advance of the issuing/publication of the notice referred to in Rule 7.3 of the Short-term Insurance Policyholder Protection Rules (PPR).
The forms are available on the FSB website. Completed forms must be addressed to the Insurance Compliance Department in the Registrar’s Office as follows: firstname.lastname@example.org or Financial Services Board, PO Box 35655, Menlo Park, Pretoria, 0102.
The additional information called for in an information letter, that is also available on the FSB website, will assist the Registrar’s Office in monitoring compliance with Rule 7.3 of the PPR and to deal with unregistered insurance business that followed the termination of a binder agreement and related unilateral cancellation of polices.
Short-term insurers are hereby required under section 4 (2) of the STI Act to furnish the Registrar with information on binder agreements and related unilateral cancellation of policies that were terminated or cancelled during the two years immediately preceding 1 April 2010.
Separate forms should be completed for each binder agreement and for each book of policies that were terminated. The forms are available on the FSB website. The Public Officer must submit the information to the Registrar’s Office as follows by 1 June 2010: email@example.com or Financial Services Board, PO Box 35655, Menlo Park, Pretoria, 0102.
The failure to provide the specified information by or within the timeframes specified constitutes an offence under section 65 of the STI Act and a contravention of the Act that may be referred to the enforcement committee in accordance with the Financial Institutions (Protection of Funds) Act No. 28 of 2001.
SAIA urges all short-term insurers to bring this information to the attention of their appointed auditors.