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Insurance contracts and their regulation in South Africa

Insurance contracts and their regulation in South Africa

Insurance is a grudge purchase and many South Africans only acquire this particular financial product as part of credit transactions. Other types of insurance products are often utilised by prudent consumers as part of a savings strategy. It occurs more often than one would expect that clients are left with more questions than answers. Below we briefly discuss the different types of insurers and how they are regulated to protect clients.

Are all insurers regulated? Are they all regulated in the same way?

Insurers of specific types of insurance must all comply with the dedicated legislation regulating that type of insurance.

The Financial Sector Regulation Act 2017, the Insurance Act, the Short Term Insurance Act and the Long Term Insurance Act create an overarching regulatory framework which regulates all insurers. A person must not conduct any insurance or reinsurance business, unless it is licenced under the Insurance Act.

 What is a contract of insurance for the purposes of the law and regulation?

An insurance contract is reciprocal in nature: in exchange for premiums paid by an insured, the insurer undertakes to pay the insured a benefit or indemnity on the occurrence of a specified event. For indemnity insurance, the insured must have an insurable interest in the insured risk at the time of the occurrence of the event. For life insurance, the insured must have an insurable interest in the life insured when the policy incepts.

A non-life insurance policy is defined as any arrangement under which a person, in exchange for the payment of premium, undertakes to provide an indemnity benefit on the happening of an unplanned or uncertain event (excluding life events, and death or disability events not arising from an accident) (section 1, Insurance Act).

A life insurance policy is defined as any arrangement in which a person, in exchange for the payment of premium, undertakes to provide a benefit on the happening of a life, health, disability or death event, or otherwise on a fixed determinable date or at the request of the policyholder (including investment products but not bank deposits and collective investment schemes) (section 1, Insurance Act).

 Are all contracts of insurance/reinsurance regulated?

All contracts of insurance are regulated by the Insurance Act, the STIA and the LTIA (as applicable). There are different classes of life and non-life business as follows:

  • Classes of non-life insurance and reinsurance business include the following:
    • motor;
    • property;
    • agriculture;
    • engineering;
    • marine;
    • aviation;
    • goods;
    • transport;
    • rail;
    • legal expense;
    • liability;
    • credit (trade or consumer);
    • guarantee;
    • accident and health; and
    • travel (personal).
  • Classes of life insurance and reinsurance business include:
    • risk (individual or group death, health or disability);
    • fund risk (death or disability);
    • credit life;
    • funeral;
    • life annuity;
    • investment; and
    • income drawdown.

Other specific types of business are regulated by specific statutes.

Contracts (such as vehicle maintenance contracts, car hire damage waivers, guarantees provided by the manufacturer or seller of goods and hedging contracts which are not insurance business) are not regulated as insurance business. 

Where can I find help?

If you have struggled with your insurer and have more questions than answers, feel free to contact us at Paul du Plessis Attorneys on 012 809 1588 or send an e-mail to paul@pauldup.co.za with your questions.