The National Assembly passed the Insurance Bill on Tuesday. The object of this Bill, which was first tabled before Parliament in 2016, is to promote the maintenance of a fair, safe and stable insurance market for the benefit and protection of policyholders, in a manner consistent with the Constitution. It aims to do this by establishing a legal framework for the prudential regulation and supervision of insurers and insurance groups and to facilitate the monitoring and the preservation of the safety and soundness of insurers.
The Minister of Finance, Mr Malusi Gigaba, gave the context of the Bill. “The 2008 global financial and economic crisis highlighted the importance of having higher prudential and market conduct standards on both banks and insurance companies, to enhance their financial soundness and ultimately support consumer protection and financial stability. It is lower-income earners that usually suffer disproportionately when financial institutions fail.”
The Bill seeks to ensure that the poor are protected from the outcomes arising from market failures. “This Bill seeks to ensure that insurers must, therefore, be able to meet their long- and short-term promises to consumers and must remain financially stable, in order to be in a position to continue to pay claims,” Mr Gigaba explained.
A new prudential framework for the insurance sector called the Solvency Assessment and Management (Sam) framework has been developed, he said. “This is to improve policyholder protection and contribute to financial stability through aligning insurers’ regulatory capital requirements with the underlying risks of the insurer.”
The Bill also seeks to provide a consolidated legal framework for the prudential supervision of insurers that is consistent with international standards for insurance regulation and supervision, and takes into account the specific conditions of South Africa, he said.
The African National Congress’ Ms Thandi Tobias, who is also a member of the Standing Committee on Finance, said this Bill will ensure that financial products are in the best interests of consumers. It will protect the consumer against inappropriate financial advice and unclear contractual obligations that often short-change the consumers, she said.
Mr David Maynier for the Democratic Alliance criticised the Bill which requires the Prudential Authority (which forms part of the South African Reserve Bank) to promote, licence and monitor financial institutions in the insurance sector according to on-prudential criteria. “This presents a clear danger to the independence of the Prudential Authority and by extension the independence of the South African Reserve Bank.”
He declared that such as act should be opposed because it enforces the South African Reserve Bank to take executive decisions. “We should be doing everything to oppose the Prudential Authority to be drawn into taking executive decisions, which could be politically charged, based on non-prudential criteria, especially when those criteria are determined by another body, in this case the Financial Sector Council, which falls under the Department of Trade and Industry, rather than the Treasury.”
Responding to the above-mentioned concern, Ms Bertha Mabe (African National Congress) stated that the National Treasury was of the view that if the Prudential Authority was not meant to address transformation issues, that needed to be addressed to ensure that it does. “It is better that the Prudential Authority does this. The Bill builds on and supports transformation and empowerment legal architecture passed by Parliament. And it allows for additional monitoring of implementation and supervisory intervention.”
The Economic Freedom Fighters’ Mr Thembinkosi Rawula is of the view that this Bill represents one of the most important economic components of South African economy that could address the economic imbalances of the past. However, it remains a missed opportunity because the licence conditions, high audits and actuarial fees are a burden to emerging black insurers. “As a result, there are few black-owned and controlled insurance companies in South Africa. They account for less than 1% of the insurance industry. But the majority of insurance policy holders are black. It is for this reason that we think this Bill should not be dealing with issues of compliance, but should decisively prioritise transformation in this sector.”
Mr Ahmed Shaik-Emam for the National Freedom Party begged to differ with Mr Rawula. According to Mr Shaik-Emam, this Bill encourages transformation in this sector. “We welcome the reduction of application fees for black-owned companies in this sector. We also take note of the fact that the fees will be decided in terms of the Financial Sector Regulation Act, with black-owned companies being able to motivate why fees applicable to them should be reduced.”
The Bill will help Parliament to conduct its oversight over the insurance sector to ensure that it is aligned with international standards, is inclusive, stable and lives up to higher prudential standards, said Ms Deidre Carter for Congress of the People. “The Bill aims to bring about a fair, safe and stable insurance market by strengthening oversight through higher prudential standards, making the industry more accessible for new entrants such as micro-insurers and aligning the sector with international standards.”
The Chairperson of the Standing Committee on Finance, Mr Yunus Carrim, reemphasised that the Committee’s approach to the Bill was that it should deracialised and diversify the sector while ensuring that the needs and interest of policy holders are protected.
“This Bill makes explicit transformation objectives and it defines what that entails. And it links licencing to plans to meet transformation commitments as envisaged by the Financial Sector Code. It also empowers the Prudential Authority to promote developmental, financial inclusion and transformational objectives in accordance with our Constitution.”
Now that the National Assembly has passed the Bill, it will be sent to the National Council of Provinces for consideration.
1 December 2017