New Policyholder Protection Rules, which protect you when you buy short-term and long-term insurance, came into effect on September 30 last year.
The rules were issued in terms of Section 55 of the Short-Term Insurance Act and Section 62 of the Long-Term Insurance Act, and replace the rules first issued in 2001.
The Policyholder Protection Rules are separate from those in the code of conduct for financial advisers set out in the Financial Advisory and Intermediary Services (FAIS) Act.
Few people seem to be aware of the Policyholder Protection Rules. It is worth knowing what the rules say because they may affect the relationship between you and your insurer.
The new rules have a strong consumer protection bias, and ensure that policies are entered into, executed and enforced in accordance with sound insurance principles and practice, in the interests of all the parties and the public.
The Short-Term Insurance Policyholder Protection Rules apply to any short-term policy, such as motor vehicle or household policies, or public liability policies (for example, those covering third party payments after motor vehicle accidents), where the policyholder is a natural person. The short-term rules do not apply to commercial policies, such as those which solely cover your business.
The Long-Term Insurance Policyholder Protection Rules apply to all long-term policies, such as disability or life policies.
In terms of the rules, an insurer must inform you in writing of a policy issued to you. The insurer must advise you of any internal complaint resolution systems and procedures, as well as full particulars relating to the short-term and long-term insurance ombudsmen.
No insurer may ask or induce you to waive your rights in terms of the rules, and if you do give any such waiver, it will be regarded as void.
No insurer or intermediary may allow you to sign a blank or partially completed form necessary for entering into a policy.
Where an insurer rejects your claim or disputes the amount of the claim or benefit claimed, the Policyholder Protection Rules require that:
- The insurer must notify you in writing of the reasons for the rejection of the claim; and
- You may, within a period of not less than 90 days after the date of the notification (in the case of the long-term rules) or the date of the relevant decision (in the case of the short-term rules), question the insurance company's decision in writing. Your representations should request reasons for the rejection of the claim.
The short-term rules specifically state that any clause in the policy barring you from instituting legal action cannot include these 90 days. This means that any period after which you can no longer take action only begins to run after the first 90-day period has passed.
However, there is no such provision in the long-term rules. In fact, these specifically state that the rule does not limit any contractual or other right that either you or your insurer may have.
A direct marketer is an insurer who uses direct marketing methods, rather than working through an intermediary or broker. Typically, direct marketers use telephone sales consultants and advertising to sell their policies.
The Policyholder Protection Rules relating to direct marketers are similar to those laid out in the FAIS Act and which apply to insurance brokers. In terms of the rules, a direct marketer must furnish you with the following particulars before you enter into a policy:
- The direct marketer's business or trade name and phone numbers;
- Telephone details of the public officer of the direct marketer;
- The name, type or class of the policy concerned, and a general explanation of the principles of the type of contract;
- The nature and extent of the benefits, how you can claim and how you can obtain payment from an insurer;
- Any restrictions on, or penalties for, early termination or withdrawal from the policy;
- The commission, considerations, fees, charges or brokerages (if any) you or any other person pays to the direct marketer;
- Details of the increases in premiums that will be implemented;
- Details of special terms and conditions, exclusions, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided; and
- Details of the manner in which you can institute claims.
When a short-term insurance contract is renewed, the direct marketer does not have to duplicate or repeat the information to you, unless material changes have occurred. If there are material changes, the insurer must disclose these changes to you before a transaction occurs.
The rules that apply to short-term insurance policies contain various provisions which directly benefit policyholders.
The new rules state that insurers may not insist that you undergo a polygraph or lie detector test in connection with a claim - not even if you agree to do so voluntarily.
Furthermore, if you have failed such a test - even if you took it voluntarily and it was not related to a claim under the policy - the test may not be used as the basis for rejecting any claim.
A policy may not contain a provision stating that any dispute can only be resolved by arbitration.
You and your insurer may, however, voluntarily agree to submit a dispute to arbitration.
This new provision is very important for policyholders. An insurer must, in each policy, provide for a period of grace for the payment of premiums of not less than 15 days after the relevant due date.
In the case of a monthly policy, the grace period only applies from the second month that the policy is in place, because the policy does not come into being until the first premium is paid.
Any provision in a policy that allows an insurer to repudiate your claim because your premium was not paid on due date, is void, if you pay that premium during the grace period, regardless of whether you pay before or after the event giving rise to the claim. This means that you are still covered for claims as long as your premium is paid within the grace period.
An insurer may not unilaterally terminate your policy without giving you 30 days' notice before the cancellation date.
- Natasha Kapp specialises in insurance law at attorneys Jan S de Villiers.