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					                                                                “Working together for a skilled tomorrow”




                           Learning Materials

               Unit Standard Title:               Demonstrate knowledge and insight
                                                  into the Short Term Insurance Act
                                                  (No.53 of 1998) and the
                                                  accompanying regulations


               Unit Standard No:                  10194


               Unit Standard Credits: 2


               NQF Level:                         4




                                Learner Guide

                    This outcomes-based learning material was
                                    developed by
                             Diagonal Broker Network
                                   and reviewed by
                                     Ben Tonkin
                    with funding from INSETA in October 2003.

                       The material is generic in nature.
        Its purpose is to serve as a guide for the further development
            and customization of company-specific, learner-specific
                 and situation-specific learning interventions.


                                           Disclaimer:
Whilst every effort has been made to ensure that the learning material is accurate, INSETA takes no
 responsibility for any loss or damage suffered by any person as a result of the reliance upon the
                                   information contained herein.




                                                                                                            1
                     CONTENTS

   Number                                             Page

     1-4       Unit Standard No. 10361                  4

     5         Purpose                                  4

     6         Learning assumed to be in place          4

     7         Specific Outcomes                       5-6

     8         Accreditation and moderation             7

     9         Learner Instructions                     7

     9.1       Information can be sourced from          8
               Critical cross-field and development
     9.2                                                8
               outcomes
               Learning Process and checklist         9 - 12

             Learner notes and activities

              Explain the purpose of the Short Term   13 - 21
Specific
            1 Insurance Act (53 of 1998)
Outcome

               Self Assessment Questions              22 - 23


              Explain the basic requirements of the
            2 Short Term Insurance Act as they        24 - 29
              apply to insurers

               Self Assessment Questions              30 - 31

              Explain how the Short Term Insurance
            3 Act controls intermediaries             32 - 45


               Self Assessment Questions                46

              Explain how the Short Term Insurance
            4 Act regulates short term insurance      47 - 52
              policies and protects individual



                                                                2
             policyholders

             Self Assessment Questions               53

             Glossary                              54 - 56

             Self-Assessment Questions (Answers)   57 – 62

             Oral Assessment                         63

             Rubric to assess POE                  64 - 65
             Short Term Insurance Act, 1998
Annexure A
             (Separate document)
             Regulations of the Act (Separate
Annexure B
             document)
             Policyholder Protection Rules
Annexure C
             (Separate document)




                                                             3
1.      Title: Demonstrate knowledge and insight into the Short
        Term Insurance Act (No 53 of 1998) and the accompanying
        regulations.



2.    Unit Standard Number:              10361


3.    Level on NQF:                       4


4.    Credits:                            3 (30 Notional hours of learning)


5.    Purpose:

This unit standard is intended to empower intermediaries, learners who work in
short term insurance and learners who work in call centres with sufficient general
knowledge of the Short Term Insurance Act to allow them to show insight into
why and how short term insurance is regulated by the Act.

The aim of this program is based on the principles of OBE. The contents must be
understood and not learnt “off by heart”.
The contents are furthermore aimed at getting the learners to interpret work
situations in relation to the requirements of the Short Term Insurance Act; adding
value in the process.

When you complete this Unit Standard you will be able to:

      Explain the purpose of the Short Term Insurance Act and concepts related
       to the Act.
      Explain the basic requirements of the Short Term Insurance Act that apply
       to insurers.
      Indicate how the Short Term Insurance Act controls intermediaries.
      Describe how the Short Term Insurance Act regulates short term insurance
       policies.




                                                                              4
6.    Learning assumed to be in place:

There is open access to this unit standard. You should be competent in
communication at NQF level 2, Mathematical Literacy at NQF level 1 and
Financial Literacy at level 3.

7.    Specific outcomes and assessment criteria:

Specific Outcome 1:
Explain the purpose of the Short Term Insurance Act (53 of 1998.)

Assessment Criteria

1.1    The reason for the Short Term Insurance Act is explained in terms of the
       need for legislation in insurance.

1.2    Terminology defined in section 1 of the Short Term Insurance Act is
       explained in own words.

1.3    The concept of short term insurance is explained with reference to the
       different classes of business defined in the Short Term Insurance Act.

1.4    The parties governed by the Short Term Insurance Act are named and
       indication is given of the role of the Registrar in administering the Short
       Term Insurance Act.

1.5    The consequences of non-compliance with the Short Term Insurance Act
       for a short term insurance organisation are named, and an indication is
       given of the recourse that a client has to the Registrar in cases of non-
       compliance.



Specific Outcome 2:
Explain the basic requirements of the Short Term Insurance Act as they
apply to insurers.


Assessment Criteria

2.1    The requirements for registration as an insurer are listed as prescribed in
       the Short Term Insurance Act.

2.2    Returns that an insurer is required to submit to the Registrar are identified
       and an indication is given of the consequences of non-compliance.




                                                                               5
2.3   The concept of solvency margin is explained in terms of approved assets
      over liabilities.

2.4   The requirements imposed on Lloyd’s are compared to those that apply to
      any other insurance organisation in terms of registration and operations.



Specific Outcome 3:
Explain how the Short Term Insurance Act controls intermediaries.


Assessment Criteria

3.1   The way in which commission and certain fees are regulated is explained
      with reference to Short Term Insurance Act.

3.2   Limitations on business practices in terms of placing business with
      insurers are described with reference to case studies and Short Term
      Insurance Act.

3.3   The concept of a Lloyd’s binder is explained and the criterion used by
      Lloyd’s to enter into an underwriting relationship with an intermediary is
      described with reference to specialist classes of business.

3.4   The way in which Lloyd’s binders are regulated is explained with reference
      to case studies and the Short Term Insurance Act.

3.5   The rights and responsibilities of an intermediary in accounting to the
      insurer are explained with reference to the collection and payment of
      premiums.



Specific Outcome 4:
Explain how the Short Term Insurance Act regulates short term insurance
policies and protects individual policyholders.

Assessment Criteria

4.1   The standard duration of policy is explained with reference to Short Term
      Insurance Act.

4.2   Rules governing policies issued to minors are explained with reference to
      Short Term Insurance Act.




                                                                           6
4.3        Reasons why a personal lines policy must be issued within a prescribed
           period are explained with reference to the rights and responsibilities of
           both parties to the contract.

4.4        The way in which the Short Term Insurance Act protects individual
           policyholders is explained with reference to Section 55 of the Act and the
           Policyholder Protection rules.


8.        Accreditation and moderation:

This unit standard will be internally assessed by the provider and moderated by a
moderator registered by INSQA or a relevant accredited ETQA. The mechanisms
and requirements for moderation are contained in the document obtainable from
INSQA.
INSQA framework for assessment and moderation.


9.        Instructions to the learner:

          This unit standard is expected to take you 30 hours to complete. If you do
           5 hours a week, it should take you 6 weeks to complete. This will include 8
           hours of reading and getting to grips with the learning material, 7 hours of
           research, 8 hours to complete short- and paragraph type questions, and
           self-assessment tests in your Learner Workbook, 4 hours for group
           discussions and case studies and 2 hours to complete a paper and pen
           assessment and a 1-hour oral assessment. All evidence of the above
           must be placed in a separate portfolio of evidence (POE).
          Your Learner Workbook, which you will complete during your 6 week
           learning programme, will form part of your Portfolio of Evidence.
          The portfolio may be in the form of a flip file, scrapbook or an electronic
           copy.
          Your portfolio is a collection of different types of evidence relating to the
           work being assessed. It includes a variety of your work samples.
          During your 6 week learning programme, you should have regular contact
           and discussion session with your facilitator or line manager. During these
           sessions the progress of your POE will be checked. It is recommended
           that in your first meeting with your facilitator, you devise a learning action
           plan, which should include dates for regular meetings with your facilitator
           and deadlines for completion of specific sections of the Learner
           Workbook. This plan should also include deadlines for receiving written
           feedback from your facilitator. You should work your plan so that you are
           ready for your summative assessment in your 6 th week.



                                                                                    7
         Should you live in a rural/distant area, your contact sessions can be
          telephonic, via fax or via email.
         During your contact sessions, you will hand your completed activities, i.e.
          your formative assessment to your facilitator/line manager, for validation.
          This together with the written feedback you receive from your facilitator
          must be added to your Portfolio of Evidence. At these contact sessions
          you will be asked to comment orally on some of your activities. Your
          facilitator will then give you written feedback on your oral input. Your
          completed Learner Workbook and written feedback will form part of your
          formative assessment for this unit standard.
         At the end of this learning programme, you will undergo a summative
          assessment, which will be conducted by a facilitator/registered assessor
          and will include a 2-hour pen and paper assessment and a 1-hour oral
          assessment.
         Once a registered assessor, based on the evidence you provide,
          assessed your completed POE (formative and summative assessment),
          you will be awarded credits for this particular unit standard.


9.1 Information can be sourced from

              Agendas, minutes, contracts with clients, policy documents and
               newspapers.

              Government Gazette Vol. 399 No. 19277 (Cape Town, 23 September
               1998)

              Via the Internet:
                                      www.polity.org.za
                                      www.acts.co.za
                                      www.gov.za

In addition to the knowledge and skills-based competencies you will acquire as
you complete each activity you will also be developing additional critical skills
known as CCFO.


9.2       Critical cross-field and developmental outcomes:

This unit standard supports in particular, the following critical cross-field
outcomes at unit standard level:

         The learner is able to collect, analyse, organise, critically evaluate and
          apply information.



                                                                                8
   The learner is able to communicate effectively in explaining the concepts
    and terminology used in the Short Term Insurance Act.
   Work effectively with others as a member of a team, group, organisation,
    and community.




                                                                        9
Learning Process and Checklist
Use this map as your action plan with your facilitator



                                                       Specific            Actual
                                                                  Date to be
Question                   Activity                    Outcome    completedDate
                                                                           Completed
1.1 The reason for the Short Term Insurance Act is explained in terms of the need for
    legislation in insurance.

    1      Why is it necessary to have Short Term         1.1
           Insurance legislation?

    2      What is contained in the Short Term            1.1
           Insurance Act?

             Can you think of any technology that
    3                                                      1.1
             has been developed recently which has
             required that new types of cover are
             introduced?
1.2 The parties governed by the Short Term Insurance Act are named and indication is
    given of the role of the Registrar in administering the Short Term Insurance Act.
  4.1-4.7    In order to understand, why and how           1.2
             short term insurance is regulated by the
             Act, you have to understand the
             following terminology (Section 1 of the
             Act). Explain the following in your own
             words:

1.3 The consequences of non-compliance with the Short Term Insurance Act for a short
    term insurance organisation are named, and an indication is given of the recourse
    that a client has to the Registrar in cases of non-compliance.

    5      Explain what the concept “short term           1.3
           insurance business” means.

    6      What are the different classes of              1.3
           business defined in the Short Term
           Insurance Act?

 7.1-7.3   Explain what the following types of            1.3
           policies mean:

           Go home and ask your family to share
    8      with you what kind of policies they have.      1.3
                Ask them why they bought that
                   particular policy.
                Categorize your feedback into
                   the various classes of policies.




                                                                                10
1.4 The concept of short term insurance is explained with reference to the different
    classes of business defined in the Short Term Insurance Act.

    9       Name the parties governed by the Short       1.4
            Term Insurance Act.

   10       Describe the “role of the Registrar” in      1.4
            administering the Short Term Insurance
            Act.

1.5 The consequences of non-compliance with the Short Term Insurance Act for a short
    term insurance organisation are named, and an indication is given of the recourse
    that a client has to the Registrar in cases of non-compliance.
    11        What are the consequences for a short       1.5
              term insurance organisation for non-
              compliance to the Short term Insurance
              Act (with reference to the Act)?

   12       Explained what the recourse is, in terms     1.5
            of the Act, that a policyholder has to the
            Registrar in cases of non-compliance,
            to the short term insurance company?

 1A – 1F    Self Assessment Questions                    1


2.1 The requirements for registration as an insurer are listed as prescribed in the Short
    Term Insurance Act.
    13      What are the requirements for the           2.1
            registration as an insurer?

2.2 Returns that an insurer is required to submit to the Registrar are identified and an
    indication is given of the consequences of non-compliance.
             List all the returns that an insurer,
    14       including Lloyd’s representatives, is     2.2
             required to submit to the Registrar.

   15       What are the consequences (penalties)        2.2
            for failure by insurers to furnish the
            Registrar with the returns as specified in
            the Act?

2.3 The concept of solvency margin is explained in terms of approved assets over
    liabilities.
               Provide a definition of both an asset
    16         and a liability and also name the      2.3
               documents that one could use to obtain
               this financial information.




                                                                                    11
2.4 The requirements imposed on Lloyd’s are compared to those that apply to any other
    insurance organisation in terms of registration and operations.
            Compare the acquirements imposed on
    18      Lloyd’s to those that apply to any other     2.4
            insurance organisation in terms of
            registration and operations.

2.A - 2.G   Self-Assessment Questions                    2

3.1 The way in which commission and certain fees are regulated is explained with
    reference to Short Term Insurance Act.
    19      What does the concept “commission” in 3.1
            the short term insurance industry
            mean?

   20       Explain how commission and certain           3.1
            fees are regulated in the Short Term
            Insurance industry.

3.2 Limitations on business practices in terms of placing business with insurers are
    described with reference to case studies and Short Term Insurance Act.
    21       Case Study: Joe Profit                     3.2

3.3 The concept of a Lloyd’s binder is explained and the criterion used by Lloyd’s to enter
    into an underwriting relationship with an intermediary is described with reference to
    specialist classes of business.
             Explain in your own words what you
    22       understand under the concept of a           3.3
             Lloyd’s binder.

            Group work: Discuss the criterion that
   23       should be used by Lloyd’s to enter into      3.3
            an underwriting relationship with an
            intermediary (with reference to the Act).

3.4 The way in which Lloyd’s binders are regulated is explained with reference to case
    studies and the Short Term Insurance Act.
             Group work: Explain how Lloyd’s
    24       binders are regulated in terms of        3.4
             Section 48 of the Act.

3.5 The rights and responsibilities of an intermediary in accounting to the insurer are
    explained with reference to the collection and payment of premiums.
            Explain the rights and responsibilities of
    25      an intermediary in accounting to the        3.5
            insurer with reference to the collection
            and payment of premiums as it is
            specified in the Act.

3.A - 3.C   Self-assessment Questions                    3




                                                                                      12
4.1 The standard duration of policy is explained with reference to Short Term Insurance
    Act.
    26      What is the standard duration of a          4.1
            business /commercial policy?

4.2 Rules governing policies issued to minors are explained with reference to Short Term
    Insurance Act.
            Explain the rules regulating policies
   27                                                  4.2
            issued to minors.

4.3 Reasons why a personal lines policy must be issued within a prescribed period are
    explained with reference to the rights and responsibilities of both parties to the
    contract.
    28       Give the reasons why a personal lines   4.3
             policy must be issued within a
             prescribed period.

4.4 The way in which the Short Term Insurance Act protects individual policyholders is
    explained with reference to Section 55 of the Act and the Policyholder Protection
    rules.
            Group work: Section 55 of the Act
            relates    to   the    protection    of
            policyholders. Discuss this protection
    29      with reference to the role that the
            Advisory Committee and Registrar          4.4
            assume      in   the   protection    of
            policyholders.

 4A - 4B         Self-Assessment Questions              4




                                                                                   13
Learner notes (See Learner Workbook for activities)

Specific Outcome 1:

Explain the purpose of the Short Term Insurance Act (53 of
1998.)
Background:
The history of insurance mainly deals with the United Kingdom, simply because most
insurance practise developed there.

Whenever a need for protection against financial loss has arisen, it has led to the
development of some form of insurance.

The word “insurance” can be explained as a system where the losses of the few are
paid from the premiums of the many.

Acts that govern insurance:
The main pieces of legislation that govern insurance and related services are:
         The “Long Term Insurance Act (Act 52 of 1998)”;
         The “Short Term Insurance Act (Act 53 of 1998)”;
         The “Pension Funds Act, 24 (Act 24 of 1956)”;
         The “Friendly Societies Act (Act 25 of 1956)”; and
         The “Medical Schemes Act”.

Lloyd’s of London:
Reputedly, one of the most famous insurance institutions in the world. Edward Lloyd
opened a coffee house in 1688, in Tower Street, in the city of London. He provided
dependable shipping news for merchants, which he started as a service to attract more
customers to the coffee house. Soon it developed into an association where people, to
this day, still carry on business. This fairly simple beginning led to the formation of the
first real insurance market, which still survives today as the Corporation of Lloyd’s.

Because of the fear of losing their property, people developed a system where they
could spread the risk. Different types of insurance developed in response to the needs of
people. Insurance companies were there to provide protection against financial loss by
people, eliminating worry about losing or damage to their property. Other classes of
insurance have developed in a similar manner.

In South Africa, insurance companies must comply with the Short Term Insurance Act
No. 53 of 1998. This lays down various regulations, which insurers must comply with
specifically. The Short Term Insurance Act contains the legislated requirements of rules
and regulations that govern the short-term industry.

1.1       The reason for the Short Term Insurance Act is explained in terms of
          the need for legislation in insurance.



                                                                                    14
The reason for the Short Term Insurance Act:
The provisions of the legislation, which governs insurance specifically, are mainly
contained in the Short Term Insurance Act and the Long Term Insurance Act. These
acts ensure that insurers remain solvent and are able to discharge their duties to the
public, and also ensure that the insured public is protected. It also spells out the legal
requirements of brokers and other intermediaries as regards to their conduct and
payment of premiums to insurers. Insurers are required to register and strict conditions
are imposed on registration. Unregistered persons are forbidden to do insurance
business.

It is necessary to have short term insurance legislation that regulates the short-term
industry. It also enables a policyholder to make informed decisions with regard to short
term insurance products, and to ensure that the parties involved conduct business fairly
and with due care and diligence.

The reason for the existence of a Short Term Insurance Act, as well as a Long Term
Insurance Act, lies in the difference in nature between short and long term insurance:

         Short term insurance focuses on the replacement value of objects (e.g., a motor
          vehicle) in the event of a loss (indemnity insurance), with personal accident and
          sickness also covered.
         Where as long term insurance focuses on the life events, such as death or
          retirement of a person (non-indemnity insurance),

Each type of insurance business therefore has its own legislation/regulations governing
its insurers and the way they conduct, manage, market and maintain their business.



_______________________________________________________

Did you know...?
You can obtain a hard copy of the Short Term insurance Act (No. 53 of 1998) for
less than R 10.00?

Where...?
At the “Government Printer”, Bosman Street, City Centre, Pretoria, Gauteng.
_______________________________________________________



1.2       Terminology defined in section 1 of the Short Term Insurance Act is
          explained in own words

Refer to terminology in the Short Term Insurance Act
Section I: Definitions

Terminology must be understood!


                                                                                     15
       It is important to learn and understand these terminologies, in order to be
           successfully assessed in this Unit Standard.
       If there is any other key word you do not understand make sure that you write it
           down and try to find it’s meaning. If you cannot find the meaning, remember there
           are many people in the industry that you could approach that could help you
           understand. This you should also consider as part of your self-development.


1.3      The concept of short term insurance is explained with reference to
         the different classes of business defined in the Short Term Insurance
         Act.

We already have learnt that the term “insurance” can be explained as a system where
the losses of the few are paid from the premiums of the many.

Primary function of insurance:
Is to act as a risk transfer mechanism. This simply means that the risk is taken away
from one person, the insured, and given to another the insurer who will carry the risk in
return for an agreed premium. Very often, the insured is expected to carry part of the risk
himself/herself. This is done either by conscious self-insurance or by way of an excess
(first amount payable) imposed by the insurer.

Benefits of risk:
               This transfer does not stop the loss from happening, but it does give the
       insured financial security and “peace of mind”.

Purpose of insurance;
The purpose is to put the insured back into the same position that he was (indemnify the
insured) or to pay the insured an agreed amount of compensation for the loss suffered.
_________________________________________________________________

Short-term insurance includes:
    Insurance of material assets
    Insurance of liabilities
    Insurance of consequential losses, such as rent if a building is damaged
    Insurance of people, such as staff of a company against accident.
____________________________________________________________

“Short-term insurance business”
The concept “short term insurance” means the business of providing or undertaking to
provide policy benefits under short term policies.
_______________________________________________________

The different classes of business that are defined in the Short Term Insurance Act are:
            Commercial
            Business or Industrial
            Personal lines (domestic policy-short term).
_______________________________________________________

Short Term Insurance can issue the following policies:


                                                                                      16
1.         “Accident and health policy”
     Means a contract in terms of which a person, in return for a premium, undertakes to provide policy benefits if a –

                         Disability event;
                         Health event; or
                         Death event.

           Disability event means the event of the functional ability of the mind or body of a
                         person becoming impaired, as a result of an accident.
           Health event means an event relating to the health of the mind or body of a
                         person by accident.
           Death event, in short-term insurance, means when a person dies as a result of
                         an accidental, external, visible event.

2.     “Engineering policy”
     Means a contract in terms of which a person, in return for a premium, undertakes to provide policy benefits if an event
      contemplated in the contract as a risk relating to –

                         The possession, use or ownership of machinery or equipment, other
                          than a motor vehicle, in the carrying on of a business; (in case of a
                          breakdown or collapse of machinery)
                         The erection and installation of machinery or other structures or the
                          undertaking of other works.


3.         “Guarantee policy”
      Means a contract in terms of which a person or company in return for a premium
      receives policy benefits if an event contemplated in the policy as a risk relating to the
      failure of a person to discharge an obligation, occurs; and includes a reinsurance
      policy in respect of such a policy.
      (This is the only manner in which a short-term insurer can provide security.)


4.     “Motor policy”
   Means a contract in terms of which a person, in return for a premium, undertakes to
   provide policy benefits if an event, contemplated in the contract as a risk relating to
   the possession, use or ownership of a motor vehicle, occurs; and includes a
   reinsurance policy in respect of such a risk.
5.     “Property policy”

      Relates to the use, ownership, loss or damage to movable or immovable                                   property.

6.         “Transportation policy”

      Something which is in the course of a journey. Whether it is a parcel, object, etc.
      Means a contract in terms of which a person, in return for a premium, undertakes to
      provide policy benefits if an event, contemplated in the contract as a risk relating to
      the possession, use or ownership of a vessel, aircraft or other craft or for the


                                                                                                                   17
     conveyance of persons or goods by air, space, land or water, or to the storage,
     treatment or handling of goods so conveyed or to be so conveyed, occurs; and
     includes a reinsurance policy in respect of such a risk.

7.      “Miscellaneous policy”

     Means a contract in terms of which a person, in return for a premium, undertakes to
     provide policy benefits if an event, contemplated in the contract as a risk relating to
     any matter not otherwise defined in this section, occurs; and includes a reinsurance
     policy in respect of such a policy.

     An example of this could be Pluvial Insurance, which is insurance against rain.
     Organisers of open-air concerts may take out this cover.



1.4     The parties governed by the Short Term Insurance Act are
        named, and indication is given of the role of the Registrar in
        administering the Short Term Insurance Act.

The parties governed by the Short Term Insurance Act are:
                       The Registrar
                       Insurers
                       Intermediaries (e.g. brokers)
                       Policyholders (insured)
                       Representatives
                       Any other entity that may involve himself in the process.
_______________________________________________________

The Minister of Finance appoints a Registrar of Insurance to carry out all powers
assigned to him by the Act.
His duties are wide ranging and insurers must comply with the following:
                   Submission of statements and accounts;
                   Statement of liabilities;
                   Statement of assets;
                   Solvency margin regulations;
                   Separation of assets;
The Registrar shall submit to the minister a report on the registrar’s activities under this
Act during each year ending 31 December, and shall furnish any additional information
relating to anything done by the Registrar under this Act that the Minister may require.
____________________________________________________________




                                                                                     18
1.5    The consequences of non-compliance with the Short Term
       Insurance Act for a short term insurance organisation are
       named, and an indication is given of the recourse that a client
       has to the Registrar in cases of non-compliance.

In section 64 of the Act the consequences of non-compliance by any offender are
defined as follows:
                    the offender shall be guilty of an offence
                    and shall be liable on conviction to a fine of up to R100 000
                     depending on the category of offence as well as the type of
                     offender
                    imprisonment not exceeding one year
                    or both such fine and imprisonment
                    the non-compliance with the administrative return requirements as
                     they relate to returns shall be to the value of R 1000 per day for
                     every day that a return remains outstanding.
_______________________________________________________

Avenues of redress for the consumer:

Anyone who may lodge a written complaint to the intermediary concerned and, if such
complaint is not resolved to his satisfaction, to the Registrar of Short Term Insurance.

The Registrar will then order the intermediary to provide a comprehensive report on the
complaint within a specified time.

If the Registrar finds that a breach has taken place, he may, after informing the
intermediary concerned of his findings, and giving the intermediary a reasonable
opportunity to respond, order corrective steps to be taken within a specified time.

The Registrar may also take any steps in connection with the breach, which are
available in law.

An intermediary who contravenes or fails to comply with the provisions of the Rules will
be guilty of an offence and, on conviction, is liable to:
    a fine not exceeding R100 000, or
    to imprisonment for a period not exceeding one year, or
    to both fine and imprisonment,
under Section 65 of the Short Term Insurance Act, 1998.
_______________________________________________________

                         Self-Assessment Questions

Specific Outcome 1:
Explain the purpose of the Short Term Insurance Act



                                                                                  19
Multiple True / false Questions
Indicate with an (x) whether the following statements are True or False

1.A   The Short Term Insurance Act is:                                   True   False
 1    52 of 1998
 2    25 of 1956
 3    24 of 1956
 4    53 of 1998



1.B   Which of the following statements are true about insurance?        True   False
 1    insurance has become stagnant and is no longer developing
 2    insurance develops everyday because of changes in technology and
      business methods, as well as changes in legislation
 3    insurance does not meet the needs of its consumers.



1.C   What is the primary function of insurance?                         True   False
 1    to transfer risk
 2    to avoid risk
 3    to reduce risk
 4    to identify risk


Paragraph type of questions

1.D Name two Acts that govern the insurance industry.




                                                                                20
1.E Name 3 types of insurance policies and explain what they are about.




1.F Name the parties governed by the Short Term Insurance Act.




                                                                          21
Specific Outcome 2:
Explain the basic requirements of the Short Term Insurance Act
as they apply to insurers.



2.1 The requirements for registration as an insurer are listed as prescribed in
    the Short Term Insurance Act.

Requirements for marketing of short term products:
    have to be registered or deemed to be registered as a short term insurer.
    authorised to carry on that kind of business.
    have to carry on business in accordance with the Act.
____________________________________________________________

Requirements for the registration:

The requirements for the registration as an insurer are:
(Part II, Section 7, of the Act.)

No person shall carry on any kind of short term insurance business, unless that person –
        is registered or deemed to be registered as a short term insurer, and is
          authorised to carry on the kind of short term insurance business concerned,
          under this Act; or
        is authorised under section 56 to do so, and carries on that business in
          accordance with this Act
        is a Lloyd’s underwriter, as provided for in Section 56
______________________________________________________________

Re-registration conditions:
       although currently registered insurers must convert to registration under the
          Act by applying within six months (Section 67)
       the Registrars have wide powers regarding the conditions of registration
          conditions for registered insurers (Section 10 and 11)
       the Registrar also has wide powers to prohibit insurers from continuing to
          carry on business where there is a failure to furnish information called for,
          misrepresentations of information provided and a failure to comply with
          conditions imposed on the insurer (Section 12).
       in drastic cases, registration can be terminated (Section 13).
_______________________________________________________

Penalty for non-registration:

Persons who are not registered insurers must not use business names which indicate
that they are in the insurance business and in Section 8(1)(b) even those who are


                                                                                  22
     registered insurers must not do anything to lead the public to think they are authorised to
     conduct classes of business when they are not so authorised.
     ____________________________________________________________

2.2 Returns that an insurer is required to submit to the Registrar are identified,
    and an indication is given of the consequences of non-compliance.

Statements and accounts:
Section 35 of the Act stipulates that a short term insurer shall furnish the Registrar with
returns relating to its business as follows:
                   in the manner and format;
                   containing the information; and
                   of the previous financial year,
prescribed by the Registrar, either generally or in relation to a particular insurer.


Every registered short term insurer must also, within 4 months of the end of his

financial year, send in the prescribed format, copies of the statements and accounts to

the Registrar, which are:

                   a revenue account in respect of each class of business conducted;
                   a profit and loss account in respect of his business as a whole,
                    including business other than insurance business – e.g. investment
                    income;
                   a balance sheet showing the company’s financial position at the end of
                    the previous financial year;
                   copies of the statements prepared in accordance with the Companies
                    Act 1973, within 14 days of their presentation to the shareholders.
     ______________________________________________________________

In section 64 of the Act the consequences of non-compliance by any offender are defined as
follows:
      the offender shall be guilty of an offence and
      shall be liable on conviction to a fine of up to R1 00 000 depending on the category of
        offence as well as the type of offender
      imprisonment not exceeding one year
      or both such fine and imprisonment
      the non-compliance with the administrative return requirements as they relate to
        returns shall be to the value of R 1 000 per day for every day that a return remains
        outstanding.

2.3 The concept of solvency margin is explained in terms of approved assets
    over liabilities.

     Solvency margin:



                                                                                         23
 Solvency margin is the safety margin that is prescribed by law, which must be the
 equivalent of at least 25% of liabilities of the aggregate of surplus assets and
 contingency reserves. This means that the insurer has to keep 25% of its reserve funds
 after paying its claims, management expenses and other operational costs.

 Solvency margin is equal to Surplus Assets divided by Net Premium Income.
 _______________________________________________________

 Asset:
 An asset is any item, tangible or intangible, excluding goodwill, which belongs to the
 organisation.

 Liability:
 A liability shows the financing or capital structure of the enterprise as at a specific date.
 Liabilities are usually divided into two criteria namely, the term for which the funds have
 been made available and secondly the source of the funds.

 In addition to liabilities (debts), liabilities for solvency margin include:

            the Rand value amount of claims outstanding; (less recoveries from approved
             reinsurance policies)
            an estimate of the claims incurred but not reported (in short-term insurance
             provision must be made for claims which have happened, but of which the
             company has not been advised);
            the estimated liability for taxation.
 _______________________________________________________

 Curatorship

 If the Registrar feels a company’s solvency margin is too low, he can put the company
 under curatorship. (A qualified person who will look after the interest of policyholders and
 shareholders until a decision is made regarding the future of the company.)

 The solvency margin therefore, to the short term insurer, is of outmost importance.
 _______________________________________________________

 Separation of assets:
 Where a domestic insurer carries on more than one principal class of business, the
 assets held in respect of each must be determined and thereafter held separately as
 regards both income and capital.

 A transfer of assts from one class to another may be made with the consent of the
 Registrar a combined bank account may be maintained provided proper records are
 kept.
 _______________________________________________________

2.4. The requirements imposed on Lloyd’s are compared to those that
     apply to any other insurance organisation in terms of registration and
     operations.


                                                                                       24
  About Lloyd’s
Lloyd’s of London is the worlds leading insurance market providing specialist insurance
  services to businesses in over 120 countries. It is the world’s second largest commercial
  insurer and sixth largest reinsurance group. In 2003, 71 syndicates are underwriting
  insurance at Lloyd’s. Approximately 5% of world reinsurance is placed at Lloyd’s, which
  also accounts for half of the London market’s international insurance premiums.
  _____________________________________________________________

Lloyd’s underwriters:

  Section 56 of the Act, prescribes the provisions relating to Lloyd’s underwriters.

 Lloyd’s brokers act like normal brokers but they are also able to place insurance at
 Lloyd’s of London. To become a Lloyd’s broker, it is necessary for the broker to display
 his experience, integrity and financial standing within the market place to the satisfaction
 of the Committee of Lloyd’s.

  Only Lloyd’s brokers are able to place business with Lloyd’s underwriters.


          Lloyd’s is unique in the insurance world and operates on a worldwide basis.
          Lloyd’s has developed many new forms of insurance over the more than 300
          years that it has been operating.

  Relations with Lloyd's
  An agent should deal with Lloyd's in an open and co-operative manner and keep Lloyd's
  promptly informed of anything concerning the agent which Lloyd's might reasonably be
  expect to be disclosed to it.

  _______________________________________________________

                         Self-Assessment Questions

  Specific Outcome 2:
  Explain the basic requirements of the Short Term Insurance Act as they
  apply to insurers.

  Multiple True / False Questions
  Indicate with an (x) whether the following statements are True or False

  2.A   The solvency margin of a company is                                   True     False
   1    The amount by which the premiums for years exceed the claims
   2    The trading profit of the year
   3    The amount of cash on hand
   4    The difference between its assets and its liabilities
   5    None of the above



                                                                                       25
2.B   A short term insurers annual statement of liabilities must include        True   False
 1    an amount in respect of goodwill
 2    the Rand value of claims outstanding
 3    an estimate of claims incurred but not reported
 4    estimated liability for taxation



2.C   The following items will be listed on an insurers balance sheet as        True   False
      assets:
1     stock
2     potential claims
3     motor vehicles
4     investments



2.D   The following items will be listed on an insurers balance sheet as        True   False
      liabilities:
1     potential claims
2     taxes payable
3     land and buildings
4     investments


2.E   The following statements apply to a Lloyds insurer:                       True   False
 1    Lloyd’s brokers act like normal brokers but they are also able to place
      insurance at Lloyd’s of London.
2     Lloyd’s operates on a worldwide basis.
3     Lloyd’s representatives only operate in London
4     A Lloyd’s representative does not have to comply with the S.A Act.

Paragraph Type of Questions


2.F     Name the requirements for marketing short term products.




                                                                                       26
2.G   Explain the word “curatorship”.




                                        27
Specific Outcome 3:
Explain how the Short Term Insurance Act controls
intermediaries.


Intermediaries:
The intermediaries in South Africa are responsible for the placing of most insurance
business. There is however a growing market of direct business, where the client buys
insurance direct from the insurance company.

There are three classes of intermediaries.
They are:
    Brokers
    Agents
    Lloyd’s brokers

The intermediary in insurance, whether he is an agent, or broker, has certain
responsibilities and is expected to behave in a trustworthy way and manner. The broker
in particular owes his client a duty of care, to ensure that he conducts his business
honestly and puts the needs of his clients before his own needs. It is important that
members of the insurance industry as a whole are professional and honest in their
dealings with the public.
_______________________________________________________

Brokers:
Brokers are the intermediaries who provide a professional intermediary service. Their
occupation is insurance. They may be responsible for the collection of premiums.
Brokers are considered to be professional insurance practitioners and are legally liable
for the advice they give clients. If the advice is wrong the client can take legal action
against the broker. For this reason a broker will have a professional indemnity cover.

       The broker’s income comes from commission (brokerage) paid by the insurance
        companies for the introduction of new business, and renewal of existing
        business. Part of the broker’s income comes from service fees paid by the
        client.
_______________________________________________________




                                                                                   28
Agents:
Agents are people who sell insurance as part of the other business they are in.
For example an estate agent who sells insurance also. They operate as agents to
increase their income. They are not responsible for the collection of premiums and do
not necessarily profess to have expert insurance knowledge.
     they introduce business
     they receive a commission
     give only limited advice
     do not hold themselves out as professionals

   Other examples: attorneys, estate agents, Wesbank.
____________________________________________________________

Lloyd’s brokers:
Lloyd’s brokers function like normal brokers but they are also able to place insurance at
Lloyd’s of London. To become a Lloyd’s broker, it is necessary for the broker to display
his experience, integrity and financial standing within the market place to the satisfaction
of the Committee of Lloyd’s.
_______________________________________________________

Service as intermediary:
There is a broad definition of “service as an intermediary” in Section 1 of the Act, which
will have a considerable effect on relationships between insurers and intermediaries as
well as on outsourcing.

For this reason we quote the definition of “Services as intermediary” in full:
“Services as intermediary” means any act performed by a person –
        (a)     the result of which is that another person will or does or offers to enter
into, vary or renew a short term policy; or
        (b)     with a view to –
                (i)     maintaining, servicing or otherwise dealing with;
                (ii)    collecting or accounting for premiums payable under; or
                (iii)   receiving, submitting or processing claims under,
                      a short term policy”.
_______________________________________________________




                                                                                     29
3.1    The way in which commission and certain fees are regulated is
       explained with reference to the Short Term Insurance Act.

Commission:
The term commission in the Short Term Insurance industry means the money, which is
paid to representatives and intermediaries in respect of the business that is generated
by the representative/intermediary. Commission is therefore the representative’s and
intermediaries earnings for the insurance business that he generates for the insurer.
Brokers refer to commission as “brokerage”.
_______________________________________________________

Two kinds of intermediary:
The Act (Section 48) provides for two kinds of intermediaries, namely an intermediary
whose remuneration is dealt with in the Regulations and independent intermediaries who
are entitled to be remunerated other than by way of commission.

Single intermediary commission:
Part 5 of the Regulations repeats the requirements that the rendering of services as
intermediary may only be remunerated by commission in terms of the Regulations. No
matter how many intermediaries there are in the chain, the total commission may not
exceed the maximum provided for.
_______________________________________________________

Maximum commission:
The Act stipulates the maximum commission payable to intermediaries-
(Section 48 of Regulations of the Act).

These are as follows:
               Motor policy, maximum commission – 12,5% of the premium payable
                  under the policy
               Non-motor maximum commission – 20%
               Collective policies written through Lloyd’s – 20%
               Any other policy written through Lloyd’s – 25%

The financial services board is currently in the process of deregulating commissions.

Due date for commission:
Commission may not be paid or accepted before the date that the premium to which
relates is paid. If any premium is refunded, the commission must be reversed and
refunded      by      the   intermediary    to    the    short   term     insurer.
_____________________________________________________________

Underwriting manager:
The other type of intermediary (Section 48(2), namely an underwriting manager) is
subject to the following:



                                                                                   30
          The intermediary will be authorised to enter into short term policies on behalf
           of the short term insurer (or a Lloyd’s underwriter).
          There must be a written agreement between the short term insurer (or Lloyd’s
           underwriter) and the independent intermediary.
          These intermediaries may not be connected with the second degree of affinity
           to any other intermediary and may only receive applications for insurance
           from insurers or other intermediaries (i.e. not directly from the public).
          Underwriting managers develop projects, often to fulfil the needs of a
           particular niche market and then reach agreement with an insurer (the
           principal) to carry the risk.
_______________________________________________________


3.2    Limitations on business practices in terms of placing business with
       insurers are described with reference to case studies and Short Term
       Insurance Act.

Free business in relating to credit Insurance:
There are cumbersome provisions regarding the free choice given to a person who is
required to provide insurance in connection with money loaned, goods leased or credit
granted (Section 43). Such a customer is entitled to prior written notification of the free
choice of insurer, whether to use a new policy or an existing policy or both, and the
intermediary who is to render services in connection with the transaction.
The customer must be told whether the value of the policy benefits will exceed the
interests of the creditor. Where such a customer chooses to have two policies involving
two intermediaries, there are going to be considerable complications in regard to the
servicing of the policy, the collecting of premiums and the handling of claims. Consent of
the insured is required to insure against risks other than mortgage insurance (e.g. home
loan insurance – fire, etc cover on the building of the house).

Insurers handling this type of credit insurance will have to draw up a standard document
advising the customer of the free choice.
The details are to be found in Section 43 of the Act. This will include a document to be
signed by the customer confirming that they have been given freedom of choice and
were not coerced or induced in the manner in which they exercised that freedom of
choice.

There is also a requirement in the Act that the premiums payable under the mortgage
policies are reasonable in relation to premiums generally charged by insurers under
similar policies. A certificate can be obtained from the Registrar in that connection
(although a certificate is not necessary).

The handling of the insurance and claims and the collection of premiums will become
complicated where there are two policies covering the debt or where the insured insists
on their own intermediary.

Simple example:
A furniture retailer can’t force a policy on a lounge suite a customer has bought, provided
that the customer has his / her own cover.



                                                                                     31
The only one who can is a client’s home loan bondholder, provided that the client can’t
get it cheaper elsewhere.

(Source: DENEYS REITZ Insurance Report, 1998)

Case study:

Joe Profit could not believe his good fortune as the numbers appeared on the late night
show. He always knew that he would win the lottery. He immediately decided that he
would revive his short-term loan business that he had managed from his room at the
university where he had studied. He also decided that he would use the money to set up
a short term insurance company. He knew immediately that he would name it maximum
risk. His lottery winnings would only just cover the establishment of an office and the
recruitment of some clerks to run the business. Joe contacted his long lost friend, Peter
Crooked, who immediately agreed that for a small fee he would cover all the business
that Joe could not cover as some sort of reinsurance.

As he sat in his chair building castles in the air, he calculated that if he could find round
about 100 people that would pay him about R 500 per month he could quite easily cover
any claim that they would submit to him. He also calculated that he could quite easily
draw a salary from these premiums that he was receiving.

Joe actually managed to find the 100 people that he had set an objective for. However
upon arriving at the office two months after setting up business he found a very
important looking person waiting for him. He was surprised to learn that this person was
an inspector from the Registrars office. The inspector advised Mr. Profit that he was
there to do an audit.

The inspector upon realising that Joe did not appear to be above board, preceded to
lock Joe’s offices prohibiting Joe from entering the premises.

Questions: (See: Learners Workbook, Question 21)

      1. What do you think the findings of the audit will be?
      2. What do you think the inspector will recommend be done to Joe?
      3. What steps should Joe have followed before he decided to set up his short term
         insurance business?
      4. What are the steps that the Registrar should take before he may prohibit Joe
         from doing business /or allow him to continue?

3.3      The concept of a Lloyd’s binder is explained and the criterion used
         by Lloyd’s to enter into an underwriting relationship with an
         intermediary is described with reference to specialist classes of
         business.

Lloyd’s of London:
Lloyd’s of London is not an insurance company, but an association of underwriting
syndicates.
     Lloyd’s brokers negotiate cover with underwriters who accept business on behalf
        of their underwriting syndicate.


                                                                                      32
      The members of the syndicate are fully liable for losses.
      The syndicate members must satisfy the Committee of Lloyd’s that they have
       sufficient assets to meet all losses that might incur.


       Lloyd’s is unique in the insurance world and operates on a worldwide basis.
_______________________________________________________

Lloyd’s members
Members of Lloyd’s of London provide the supporting capital on which the market is
built. Corporate members include investment institutions and international insurance
companies. Individual members are known as “Names”.
Capital provided by members of Lloyd’s is used to underwrite insurance risks.

Underwriting syndicates
An insurance syndicate is a group of Lloyd’s members, corporate or individual, who
provide capital to back the liabilities they insure. Syndicates are annual ventures.
Syndicates operate as independent business units within the Lloyd’s market and are run
by managing agents, who appoint the underwriting team which writes risk on behalf of
the syndicate membership.
Syndicates compete for business, thus offering unparalleled choice, flexibility and
continuing innovation. Syndicates cover either all or a portion of the risk and are staffed
by underwriters, the insurance professionals on whose expertise and judgement the
market depends.
____________________________________________________________

Criterion that should be used by Lloyd’s to enter into an underwriting relationship
with an intermediary:

The criterion is prescribed by law and specifically in Section 57 of the Short Term
Insurance Act.

Lloyds are required to appoint, and at all times have a natural person who is a
permanent resident of South Africa as it’s representative. This person should also have
a deputy appointed on the same basis as the representative. The deputy assumes all
the responsibilities as required in the absence of the representative.

The Registrar must approve these appointments before they are effective. These
persons must be fit and proper to hold office. It is their duty to ensure that:
    Lloyds complies with the Act
    Lloyds complies with the requirements of the board of trustees of Lloyds
      themselves.

The representatives must also:
    have their place of business in South Africa
    notify the Registrar of the address and any change thereto of their place of
       business.
_______________________________________________________



                                                                                     33
Definitions:

“Lloyd’s”
Means the association of persons generally known as Lloyd’s
which is incorporated by the Lloyd’s Act of 1871 (34 Vict. C21), passed by the
Parliament of the United kingdom of Great Britain and Northern Ireland.

“Lloyd’s broker”
Means a person permitted by the Lloyd’s Council to perform acts as a broker at Lloyd’s.

“Lloyd’s correspondent”
Means a person who is approved by Lloyd’s and authorised by a Lloyd’s broker or
Lloyd’s underwriter to act in the Republic as an agent for or on behalf of such broker or
underwriter.

“Lloyd’s representative”
Means the person referred to in section 57 of the Act.

“Lloyd’s underwriter”
Means an underwriting member of Lloyd’s.
_______________________________________________________


3.4          The way in which Lloyd’s binders are regulated is explained with
             reference to case studies and the Short Term Insurance Act.

The way in which Lloyd’s binders are explained in the Act:

No independent intermediary or Lloyd’s binder shall be allowed to accept any
consideration for the rendering of services as an intermediary from any short-term
insurer unless an agreement to this effect is in place.

Section 48(2) of the Short Term Insurance Act describes in full the terms and conditions
that in addition to any other term or condition should be included in an agreement for
remuneration between the short term insurer and such Lloyd’s binder or independent
intermediary.

The following compulsory important terms are to be included in such an agreement:

      i)        the kinds of short-term policies which may so be entered into;
      ii)       the premiums or the basis for the calculation of premiums to be charged set
                out;
      iii)      the wording of the policies clearly defined;
      iv)       the maximum value of the policy benefits clearly stated;

It is important to note that if the intermediary is empowered to settle or pay claims, that
such powers be clearly stipulated in the agreement as well as the circumstances under
which it may be done.




                                                                                     34
If additional remuneration other than commission is to be received by the intermediary, it
should also be clearly set out in the agreement.

An independent intermediary, acting on behalf of a specific short-term insurer and in
terms of an agreement, must always disclosed this to a prospective policyholder.

If the short-term insurer offers any other remuneration than commission, such
agreement cannot be entered into with more than one intermediary for any particular
kind of policy.

An independent intermediary who is entitled to remuneration other than commission
only, is prohibited from:
     i)      entering into any other short-term policy than the kind to which the agreement
             relates;
     ii)     enter into any short-term policy to which another independent intermediary
             a. holds shares or any interest in the former;
             b. if the former holds shares in the latter’s business;
             c. who is a debtor or creditor of the former;
             d. who is related within the second degree of consanguinity or affinity to the
                 former;
It is worth the while to note that even if an intermediary failed to act in accordance with
the agreement entered into, the short-term insurer shall still be liable for any such policy
issued. The short-term insurer therefore has to be very careful in selecting an
intermediary who in the end could cause a lot of problems for it.



3.5       The rights and responsibilities of an intermediary in accounting to
          the insurer are explained with reference to the collection and
          payment of premiums.

Premiums:
As soon as the policy has been accepted, the policyholder needs to pay the premium.
The Insurance Act, which governs the operation of insurance companies, lays down
certain rules that must be followed. This includes important issues such as:

         that intermediaries have a set amount of time to pay to companies the premiums
          that they have received.
         That not every broker is allowed to collect premium. (There are credit brokers
          and non-credit brokers.)

In terms of Section 45 and Regulation 4 of the Short Term Insurance Act, any person
who collects premium on behalf of an insurer must have a guarantee issued to cover the
premiums he has received from clients. The insurer can lodge a claim against the
guarantee, if the broker fraudulently misappropriates premiums paid by the insured’s.
This protects the client.
_______________________________________________________

Collection of premiums by intermediaries:
The Act deals with the collection of premiums by intermediaries in Section 45.


                                                                                     35
Details will be found in the Regulations Part 4.
It provides that no intermediary shall “receive, hold or in any other manner deal with
premiums payable under a short term policy” (not including short term reinsurance
policies) and short term insurers may not permit such dealing in premiums, unless the
intermediary is authorised to do so by the short term insurer in accordance with the
Regulations.
____________________________________________________________

Intermediary to provide guarantee:
Short-term insurers must authorise independent intermediaries in writing to receive, hold
and deal with premiums under their policies and the intermediary must provide a
guarantee (which will be a Regulation 4 guarantee).
The terms are similar to those in the Act, though in clearer language. The guarantee will
be a guarantee policy or a bank guarantee in similar form to a guarantee policy, in the
form prescribed by the Registrar.
_______________________________________________________


Payment over to insurer in 15 days:
The premium must be paid to the insurer within 15 days after the end of the month in
which premiums are received, reduced by any refund of premiums due to any
policyholder represented by the intermediary and any commission, or brokerage,
payable to the intermediary in respect of the short term policies concerned. The period of
15 days is not extended if there is more than one intermediary receiving premiums.
_______________________________________________________

Only one intermediary to collect personal lines premium:
As in the Act, it is provided that a short term insurer may not authorise more than one
person to receive a premium in relation to the same policy, which is personal lines
business (i.e. where the policyholder is a natural person).

       Intermediary means anyone who acts in this way as a “go-between”. It is easier
       than speaking of “broker”, “agent”, “consultant” or other names by which they
       might be called.
______________________________________________________
Premiums for a policy can be paid in different ways: e.g.
                  The premium can be paid annually (less popular).
                  Monthly payments made by debit order (more popular-more
                   convenient).
                  Some insurers have a quarterly or half-yearly payment method.
The undertaking by the insurer to provide policy benefits shall be suspended until the
insurer has received the first (or only) premium, or until arrangements to its satisfaction
have been made for the provision of the premium by debit order, stop order, credit card
or other instrument approved by the Registrar.
___________________________________________________________



                                                                                    36
Overdue Premium:
If a premium has not been paid on its due date, the insurer shall notify the policyholder
of the non-payment, and the policy shall remain in force for a prescribed grace period
(maximum of one month), or for such longer period as may be agreed between the
parties. If the overdue premium is not paid by the end of any such period, the policy
shall, provided there is sufficient value, be made paid-up (continue without further
premium payments). If there is not a sufficient value, the policy shall be surrendered /
lapsed. The insurer must inform the policyholder of these events in writing.
___________________________________________________________
Payment of monthly premiums:
Policy wordings, as well as the debit order form which must be completed by the
insured, have a clause which details when the premium is payable. It will also state what
will happen if the insured fails to pay the premium.
It is normal practice for insurers to represent debit orders that have been returned.
However, if the debit order is returned with “payment stopped” the contract is
immediately cancelled.
If two or more orders are returned, the policy is cancelled from the due date of the first
returned debit order.
______________________________________________________


Receipts (to be issued) for premiums paid in cash:
(Section 46 of the Act)


Where premiums are paid in cash, the recipient must be given a written
receipt stating the name, address and telephone number of the recipient,
the policy number and the name of the short term insurer.
_______________________________________________________
                            Self-Assessment Questions
Specific Outcome 3:
Explain how the Short Term Insurance Act controls intermediaries.

Multiple True / False Questions
Indicate with an (x) whether the following statements are True or False

 3.A   In terms of the Insurance Act when must premiums, which have         True   False
       been received be paid over by credit agents?
  1    within 30 days of receipt of the premium

  2    when ever the broker feels is suitable

  3    within 15 days of receiving them

  4    within 15 days after closing receipts


                                                                                    37
 3.B   A broker in the South African Market means:                               True   False

  1    it is a part time intermediary who has other employment also

  2    that he / she is not usually responsible for the collection of premium
  3    that he / she does not have any duty to look after his clients interest
  4    it is a professional who works in the insurance industry as a full time
       intermediary


Paragraph Type Questions

 3.C Explain the frequency with which premiums can be paid for a short term
      policy.




Specific Outcome 4:
Explain how the Short Term Insurance Act regulates short term
insurance policies and protects individual policyholders.



4.1    The standard duration of a policy is explained with reference to Short
       Term Insurance Act.

Standard duration of policy:

Short term insurance contracts are normally issued for a period of one year (business
/commercial) and are then reviewed by insurers. The contract can then be renewed or
declined or terms and conditions altered.

Personal lines and small retail policies can be issued for a monthly period and a monthly
premium.
_______________________________________________________



                                                                                        38
The decision to avoid, cancel or reject:

It need hardly be said that the steps referred to the above, are very serious steps with
potentially far-reaching consequences.

In many of the cases the onus is on the insurer to justify the taking of the step and it is
no secret that if the Court can find in favour of the claimant, it will. Avoidance or a
cancellation of a policy or the rejection of a claim should therefore be based on facts that
the insurer is able to prove in court. Hearsay evidence or unsigned statements by the
insured, or simply a loss adjuster’s view are not usually sufficient for this purpose. The
question is not: "Are there legal grounds for avoidance/cancellation/rejection" but: "Can
we prove the factual grounds for avoidance/cancellation/rejection?” Bear in mind that
the onus is often on the insurer. As the question: "Who will be the witnesses to discharge
that onus?”

The decision to avoid/cancel/reject is so important that it should be discussed with
management within the company on every occasion that it is contemplated. No decision
should be taken without full consideration of the claim file and the underwriting file.

Where there are co-insurers, it is desirable to ensure that every co-insurer agrees to the
avoidance/cancellation/rejection. The extent to which the co-
insurers' consent is necessary and the extent to which they are bound by the decision of
the lead insurer depend on the terms of the policy.
_______________________________________________________



4.2    Rules governing policies issued to minors are explained with
       reference to Short Term Insurance Act.


Policies issued to minors:

According to Section 52 of the Act:

A minor who has attained the age of 18 years may, without the consent of his or her
guardian, enter into or vary, or deal with an short term insurance contract and pay the
premium due under the policy with money which he or she has earned or which is at his
or her disposal, and a policy benefit under the policy shall be provided to the minor who
may deal with it as he or she thinks fit without the consent of his or her guardian.

In short it means that minors over 18 years of age may enter into and deal with policies
without the consent of the guardian.

______________________________________________________________




                                                                                     39
4.3    Reasons why a personal lines policy must be issued within a
       prescribed period are explained with reference to the rights and
       responsibilities of both parties to the contract.

Private Individuals:

The private individual in insurance is the “man in the street”. The individual often comes
into contact with insurance when he buys a house or a motorcar.
The supplier of finance will usually insist that the buyer proves valid insurance, not
necessarily via the supplier. Therefore this is often the first point of contact with
insurance.
_______________________________________________________

Personal lines insurance:

Personal lines insurance or domestic insurance was considered unattractive previously
because of the high cost involved in administering it. Today however, because of
improved technology, companies have become more involved in the domestic market.
There are even companies which specialise in this class of business today.
_______________________________________________________

Copy of short term policy:

Natural persons who are insured under short term policies (personal line business) must
be provided with a copy of the document embodying the contract within 30 days being
entered into or varied (section 47 of the Act).

A policyholder and anyone else who entered into a short term policy, shall be entitled,
against payment of a fee, which will be prescribed by the Registrar, to be provided upon
request, with a copy of the policy.

Reasons why a personal lines policy must be issued within a prescribed period:
    The person insured must be certain the policy is what he or she wants
    When a loss happens, is there enough cover or not?
    Is the policy by the insurer the policy the insured chose?
    Excess
    Scope of
    Cover conditions
    Exclusions
_______________________________________________________




                                                                                    40
Minimum terms of the contract:

As with any other contract, an insurance contract or policy is concluded when the parties
(the proposer or client, and the insurer) agree to be bound by certain terms and
conditions. There must be an offer (proposal) by the prospective policyholder on the one
hand and acceptance on the other hand by the insurer. The issue of a policy indicates
the insurer’s acceptance.

The terms by which the parties agree to be bound, basically resolve around:
    The person insured
    The risk insured against
    The amount payable by the insurer on the happening of the event insured
       against
    The amount of premium payable by the insured, and
    The period of insurance.

Broadly, the terms of an insurance contract can be classified into the following:

         Terms required for the contract to come effect
          E.g. Untrue statements by the policyholder which result in a material alteration in
          the risk

         Terms required for the contract to remain valid
          E.g. that the policyholder remains a South African resident and pay premiums on
          every due date, and

         Terms required at claim stage
          E.g. that a claim must be submitted in writing on the insurer’s prescribed form.

4.4       The way in which the Short Term Insurance Act protects individual
          policyholders is explained with reference to Section 55 of the Act and
          the Policyholder Protection rules.

Section 55 of the Act, determines that the Advisory Committee or the Registrar, after
consultation with the Advisory committee, may determine rules that ensure that all
policies are enforced and managed in terms of sound insurance practises. They may
also vary or recall any such rule. The time frames that relate to the lapsing of any rule
are part and parcel of their powers.
These rules may provide that:
         Particular imports may not appear
         Information must be made known
         Policyholders may cancel policies under certain conditions and within specified
          periods, and the legal consequences of such
         The different arrangements applicable to the various policies
         Determine and implement fines and the circumstances of such



                                                                                       41
          Publish rules and variations in the Gazette relating to variations and rescission
           requirements inviting all interested persons to make written representations in
           relation to any matter within a specified period of 21 days in this regard.

Policyholder Protection Rules:
See: Annexure C.
______________________________________________________________

                               Self-Assessment Questions

Specific Outcome 4:
Explain how the Short Term Insurance Act regulates short term insurance
policies and protects individual policyholders.

Multiple True / False Question
Indicate with an (x) whether the following statement is True or False


4.A       Rules regulating policies issued to minors:                              True   False
 1        According to Section 56 of the Act, a minor over 18 years of age may
          enter into and deal with policies without the consent of the guardian.
 2        According to Section 52 of the Act a person under the age of 18 may
          enter into and deal with policies without the consent of the guardian.
 3        According to Section 52 of the Act, a minor over 18 years of age may
          enter into and deal with policies without the consent of the guardian.




Paragraph type Question



4.B        Briefly describe the terms by which the parties (short term insurance
           contract) agree to be bound.




                                                                                          42
                                   Glossary
Agent                   A person who acts on behalf of another and in the case of
                        insurance is the intermediary between the proposer and
                        the insurer.

Asset                   A property or financial commodity that can, if necessary,
                        be converted into cash.

Attestation             The signing clause in a contract of insurance.

Broker                  A professional full-time independent agent or
                        intermediary.

Brokerage               The commission or fee paid to the brokers by the insurers
                        for placing business with them.

                        A term appropriately used for policies cancelled on breach
Cancellation            of a material term or in terms of a cancellation clause in
                        the policy.

Cancellation Clause     The clause in a policy which allows one party to cancel
                        the contract following due notice to the other.

Claim                   A demand made by the insured for payment, in terms of
                        the policy contract, after the occurrence of loss or damage
                        covered by the policy.

Claim Form              A form supplied by an insurer to enable an insured to
                        lodge a claim in terms of the policy.

Commission /            The payment made to intermediaries by insurers for
brokerage               placing business with them.

Contract                An agreement made by two or more parties with the
                        intention of creating a legal obligation between them.

Contract of Insurance   An agreement between insurer and insured whereby, in
                        return for the payment of a premium, the insurer
                        undertakes to indemnify the insured upon the happening
                        of a specified event.




                                                                                  43
Cover                  The protection provided by insurance.

                       A qualified person who will look after the interest of
Curatorship            policyholders and shareholders until a decision is made
                       regarding the future of the company.

Disclosure             The duty of the parties to a contract of insurance to reveal
                       all material facts to each other before it is concluded and
                       prior to each renewal.

Indemnity cover        This is a special type of insurance policy, which would
                       cover any compensation the broker would have to pay for
                       wrong advice.

Insurance Policy       A document that is evidence of a contract of insurance.

Insurance              A risk transfers arrangement whereby the responsibility
                       for meeting losses passes from one party (the insured) to
                       another (the insurer) on payment of a premium.
Insured                A person or organisation who takes out insurance.

Insurer                A company or society transacting insurance business.

Intermediary           A person who arranges insurance on behalf of another.

Liability              A claim upon one’s assets by another person.

Lloyd’s                The corporation, which organises the market of individual
                       underwriters in London (but accepts business introduced
                       by brokers from all parts of the world) and provides a full
                       range of ancillary.

Policy                 Written evidence of the terms of an insurance contract.

Policyholder           The insured person.

Premium                The money paid by the insured to the insurer for cover as
                       provided in the policy.

Rejection              Is the suggested term for the rejection of a claim to an
                       indemnity under a valid policy.
Short Term Insurance   Insurance that operates on a year-to-year basis and which
                       the insurer or the insured may terminate.

Solvency Margin        Solvency margin is equal to Surplus Assets divided by Net
                       Premium Income.

Syndicates             The meaning is similar to “group”.

Third Party            A person who is not a party to a contract.



                                                                                 44
Underwriter                 An insurer; a person who makes decisions on whether or
                            not to accept insurance business.

Underwriting                The process of assessing a proposal for insurance to
                            decide on its acceptability and if so, on what terms.

Void                        Refers to a policy that never existed as a lawful contract
                            so that no rights and obligations came into being.
Voidable                    Refers to a policy that either party may elect, on good
                            grounds, to declare to be of no effect from its inception.
Void Contract               A contract that cannot be enforced by either party.

Write
(Insurance Business)        Provide insurance cover.


                            A margin note that highlights information for learners.


                           Self-Assessment Questions

                                    Sample solutions


Specific Outcome 1:
Explain the purpose of the Short Term Insurance Act

Multiple True / false Questions
Indicate with an (x) whether the following statements are True or False


1.A    The Short Term Insurance Act is:                                       True        False
 1     52 of 1998                                                                           X
 2     25 of 1956                                                                           X
 3     24 of 1956                                                                           X
 4     53 of 1998                                                                X



1.B    Which of the following statements are true about insurance             True        False
 1     insurance has become stagnant and is no longer developing                            X
       insurance develops everyday because of changes in technology and
 2     business methods, as well as changes in legislation                       X
 3     insurance does not meet the needs of its consumers.                                   X




1.C    What is the primary function of Insurance?                         True       False
 1     to transfer risk                                                    X
 2     to avoid risk                                                                  X



                                                                                          45
 3        to reduce risk                                                                        X
 4        to identify risk                                                                      X



Paragraph Type of Questions


1.D         Name two Acts that govern the insurance industry.


           The “Long Term Insurance Act (Act 52 of 1998)”
           The “Short Term Insurance Act (Act 53 of 1998)”


      (Any other Act listed in Learner Guide, Specific Outcome 1.)




1.E         List 3 types of insurance policies and explain what they are about.

1. “Motor policy”
    Means a contract in terms of which a person, in return for a premium, undertakes to provide
    policy benefits if an event, contemplated in the contract as a risk relating to the possession,
    use or ownership of a motor vehicle, occurs; and includes a reinsurance policy in respect of
    such a risk.

2.    “Accident and health policy”
      Means a contract in terms of which a person, in return for a premium, undertakes to provide
      policy benefits if a: disability event; health event; or death event.


3. “Guarantee policy”
      Means a contract in terms of which a person or company in return for a premium receives
      policy benefits if an event contemplated in the policy as a risk relating to the failure of a person
      to discharge an obligation, occurs; and includes a reinsurance policy in respect of such a risk.
      (This is the only manner in which a short-term insurer can provide security.)

      (Any other policy listed in Learner Guide 1.3)




1.F Name the parties governed by the Short Term Insurance Act.


           The Registrar
           Insurers
           Intermediaries (e.g. brokers)
           Policyholders (insured)
           Representatives
           Any other entity that may involve himself in the process.


                                                                                                    46
                            Self-Assessment Questions

                                      Sample solutions

Specific Outcome 2:
Explain the basic requirements of the Short Term Insurance Act as they
apply to insurers.

Multiple True / False Questions
Indicate with an (x) whether the following statements are True or False


2.A   The solvency margin of a company is                                       True      False
 1    The amount by which the premiums for years exceed the claims                             X
 2    The trading profit of the year                                                           X
 3    The amount of cash on hand                                                               X
 4    The difference between its assets and its liabilities                                    X
 5    None of the above                                                           X

2.B   A short term insurers annual statement of liabilities must include        True      False
 1    an amount in respect of goodwill                                                         X
 2    the Rand value of claims outstanding                                        X
 3    an estimate of claims incurred but not reported                             X
 4    estimated liability for taxation                                            X

2.C   The following items will be listed on an insurers balance sheet as        True      False
      assets:
 1    stock                                                                       X
 2    potential claims                                                                         X
 3    motor vehicles                                                              X
 4    investments                                                                 X

2.D   The following items will be listed on an insurers balance sheet as        True      False
      liabilities:
 1    potential claims                                                            X
 2    taxes payable                                                               X
 3    land and buildings                                                                       X
 4    investments                                                                              X


2.E   The following statements apply to a Lloyds insurer:                  True        False
 1    Lloyd’s brokers act like normal brokers but they are also able to     X
      place insurance at Lloyd’s of London.
 2    Lloyd’s operates on a worldwide basis.                                X


                                                                                          47
 3        Lloyd’s representatives only operate in London                               X
 4        A Lloyd’s representative does not have to comply with the S.A Act.           X
Paragraph Type of Questions



2.F        Name the requirements for marketing short term products.



          have to be registered or deemed to be registered as a short term insurer.
          authorised to carry on that kind of business.
          have to carry on business in accordance with the Act.




2.G        Explain the word “curatorship”.


If the Registrar feels a company’s solvency margin is too low, he can put the
company under curatorship.
A qualified person who will look after the interest of policyholders and shareholders
until a decision is made regarding the future of the company.




                               Self-Assessment Questions

                                         Sample solutions

Specific Outcome 3:
Explain how the Short Term Insurance Act controls intermediaries.


Multiple True / False Questions
Indicate with an (x) whether the following statements are True or False


 3.A      In terms of the Insurance Act when must premiums, which have         True    False
          been received be paid over by credit agents?



                                                                                       48
  1        within 30 days of receipt of the premium                                          X
  2        when ever the broker feels is suitable                                            X
  3        within 15 days of receiving them                                                  X
  4        within 15 days after closing receipts                                      X


 3.B       A broker in the South African Market means:                               True   False
 1         it is a part time intermediary who has other employment also                      X
 2         that he / she is not usually responsible for the collection of premium            X
 3         that he / she does not have any duty to look after his clients interest           X
 4         it is a professional who works in the insurance industry as a full time    X
           intermediary


Paragraph Type Question

 3.C Explain the frequency with which premiums can be paid for a short term policy.

 Premium can be paid –

            Monthly- this involves a payment every month via a debit order
            Quarterly – this would involve payment 4 times per year
            Half-yearly – premium is paid twice a year
            Annually – this involves a payment once a year




                                 Self-Assessment Questions

                                           Sample solutions

Specific Outcome 4:
Explain how the Short Term Insurance Act regulates short term insurance
policies and protects individual policyholders.

Multiple True / False Question
Indicate with an (x) whether the following statement is True or False


4.A    Rules regulating policies issued to minors:                                   True   False
 1     According to Section 56 of the Act, a minor over 18 years of age may                  X
       enter into and deal with policies without the consent of the guardian.
 2     According to Section 52 of the Act a person under the age of 18 may                   X
       enter into and deal with policies without the consent of the guardian.
 3     According to Section 52 of the Act, a minor over 18 years of age may           X



                                                                                            49
       enter into and deal with policies without the consent of the guardian.




Paragraph Type Question



4. B    Briefly describe the terms by which the parties (short term insurance
        contract) agree to be bound.



       The person insured
       The risk insured against
       The amount payable by the insurer on the happening of the event insured
        against
       The amount of premium payable by the insured, and
       The period of insurance.




Oral Assessment

The facilitator will use this table to monitor your participation during the
discussions at your contact sessions. You are expected to contribute during
each of the contact sessions.


                              Action                                  Yes/No    Comments


The learner brought summaries and notes made to the
session for discussion. The learner makes notes
during the discussion, where notes are required to be
transcribed.




The learner is able to:
Interpret documents related to the rules of the Short
Term Insurance Act, 1998. (Annexure A)
Interpret documents related to Regulations of the Short
Term Insurance Act. (Annexure B)



                                                                                     50
The learner can take part in group discussions by
talking about other learners’ feedback and reports.




Rubric for Assessment of Portfolio of Evidence

                                                            Learner is          Learner is not yet
             Assessment Criteria                            Competent           competent

                                                        Questions are
                                                                                Questions are
                                                        answered in clear
                                                                                answered incorrectly,
                                                        sentences explaining.
                                                                                or not clearly.


                                        Specific Outcome 1
               Explain the purpose of the Short Term Insurance Act (53 of 1998.)

1.1 The reason for the Short Term Insurance Act is
    explained in terms of the need for legislation in
    insurance.

1.2 Terminology defined in section 1 of the Short
    Term Insurance Act is explained in own words.


                                                                                            51
1.3 The concept of short term insurance is
    explained with reference to the different
    classes of business defined in the Short Term
    Insurance Act.

1.4 The parties governed by the Short Term
    Insurance Act are named and indication is
    given of the role of the Registrar in
    administering the Short Term Insurance Act.

1.5 The consequences of non-compliance with the
    Short Term Insurance Act for a short term
    insurance organisation are named, and an
    indication is given of the recourse that a client
    has to the Registrar in cases of non-
    compliance.

                                     Specific Outcome 2
  Explain the basic requirements of the Short Term Insurance Act as they apply to insurers.

2.1 The requirements for registration as an insurer
    are listed as prescribed in the Short Term
    Insurance Act.

2.2 Returns that an insurer is required to submit to
    the Registrar are identified and an indication is
    given of the consequences of non-compliance.

2.3 The concept of solvency margin is explained in
    terms of approved assets over liabilities.

2.4 The requirements imposed on Lloyd’s are
    compared to those that apply to any other
    insurance organisation in terms of registration
    and operations.




                                                             Learner is          Learner is not yet
             Assessment Criteria                             Competent               competent
                                                        Questions are           Questions are
                                                        answered in clear       answered incorrectly,
                                                        sentences explaining.   or not clearly.

                                      Specific Outcome 3
               Explain how the Short Term Insurance Act controls intermediaries.

3.1 The way in which commission and certain

    fees are regulated is explained with




                                                                                            52
    reference to Short Term Insurance Act.




3.2 Limitations on business practices in terms

    of placing business with insurers are

    described with reference to case studies

    and Short Term Insurance Act.




3.3 The concept of a Lloyd’s binder is explained

    and the criterion used by Lloyd’s to enter

    into an underwriting relationship with an

    intermediary is described with reference to

    specialist classes of business.



3.4 The way in which Lloyd’s binders are regulated
    is explained with reference to case studies and
    the Short Term Insurance Act.


3.5 The rights and responsibilities of an
    intermediary in accounting to the insurer are
    explained with reference to the collection and
    payment of premiums.

                                         Specific Outcome 4
    Explain how the Short Term Insurance Act regulates short term insurance policies and
                                 protects individual policyholders
4.1 The standard duration of policy is explained
    with reference to Short Term Insurance Act.



4.2. Rules governing policies issued to minors are
     explained with reference to Short Term
     Insurance Act.

4.3 Reasons why a personal lines policy must be
    issued within a prescribed period are explained
    with reference to the rights and responsibilities
    of both parties to the contract.



                                                                                   53
4.4 The way in which the Short Term Insurance Act
    protects individual policyholders is explained
    with reference to Section 55 of the Act and the
    Policyholder Protection rules.




                                                      54

				
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