Long-term Insurance

‘Insurance’ is a system of financial protection which is brought about by one person paying money to another person (usually a company) who is called the insurer. These money payments are called ‘premiums’ and, in return, the insurer agrees to compensate the ‘insured’ if some specific event happens – it could be theft from his home, car accident damage, the house burning down, etc. ‘Life insurance’ is not insurance for life, but the contract is for a pay-out if you die.

If the event doesn’t happen, the insured obviously gains; it keeps the premiums. However, the event may happen the next day after the contract is signed, and in which case the insurer ‘loses’ – it must pay out a whole lot, but has perhaps only received one month’s premium. So, basically, insurance is all about the insurer taking a risk.

Insurance for theft, damage, fire and such losses is called ‘short-term’ insurance. Life insurance and other long-term policies (such as disability insurance) is called ‘long-term’ insurance, and is governed by the Long-term Insurance Act 1998.1

A. Registration and the Registrar

  1. It is an offence to carry on any kind of long-term insurance business unless you are registered and authorised to carry on the kind of business concerned.2 3

  2. It is an offence to perform any act which indicates that you carry on business as a long-term insurer, unless you are registered under the Act.4

  3. The Registrar of Long-term Insurance has fairly extensive powers of regulation and issuing directives, and it is against the law not to comply therewith. For example:
    • the Registrar can issue any directive to ensure compliance with the Act, and failure to comply results in a criminal offence;5
    • the Registrar can also issue a notice requiring a long-term insurer to terminate the appointment of any director, officer, auditor or actuary if that person is not fit and proper to hold the position. It is an offence not to comply with this notice.6
  4. Unless the Short-term Insurance Act 1998 applies, it is an offence to use the words ‘insure’, ‘assure’ or ‘underwrite’ in your business name or description, unless you are a long-term insurer registered under the Act.7

  5. It is an offence to furnish false information to the Registrar in any application to him, whether for registration as a long-term insurer or otherwise.8

  6. It is an offence for a long-term insurer to change its name (or a translation or shortened form thereof) without the prior approval of the Registrar.9

B. Business Practices – insurers and brokers

  1. If any insured person is required to make his policy available as security for any loan,10 lease or credit arrangement, it is a criminal offence not to give him written notification, beforehand, that he is entitled to enter into a new policy for that purpose, and with various options available to him in that regard.11

  2. It is an offence to offer, or provide any compensation as an inducement for someone to enter into, change, continue or cancel a long-term policy.12

  3. It is an offence for a long-term insurer to offer, or provide any compensation to anyone for rendering services as an intermediary – other than the commission or remuneration prescribed by regulation.13

  4. It is an offence to accept such compensation.14

  5. All long-term insurers must provide a summary of the following information to all new policy holders (or where policies have been varied):15
    • the representations made to it which the insurer regards as material;
    • the premiums payable;
    • the policy benefits;
    • the events which will give rise to benefits;
    • circumstances in which the benefits will not be provided.

    It is an offence if this summary is not provided within 60 days.

  6. It is also an offence to conduct a long-term insurance business otherwise than in accordance with the Act.16

C. The actuary

  1. At all times, a long-term insurer must have: an actuary, who is resident in South Africa, is a Fellow of the Actuarial Society of South Africa and has appropriate practical experience regarding the long-term insurance business. Failure to comply with this results in a criminal offence.17

  2. It is a crime for an appointment of this statutory actuary to take effect unless it has been approved by the Registrar.18

  3. An insurer commits an offence if it enters into any policy, awards a bonus or benefit to a policy holder, or distinguishes the financial aspects of different policies unless the statutory actuary is satisfied as to the actuarial soundness or justification thereof.19

D. Financial health

  1. A long-term insurer commits a criminal offence if, at any time, it does not have sufficient assets, and make provision for adequate capital so as to be in a position to meet its liabilities and capital requirements.20

  2. Apart from anything else, this means that the total value of its assets must, on any given day, be not less than its liabilities and capital requisites on that day. If this is not the case, the insurer commits an offence.21

  3. If an insurer does any of the following, without the approval of the Registrar, it commits a crime:22

    • encumber its assets;
    • borrow any asset;
    • give security for another’s obligations;
    • allow its assets to be held by someone else on its behalf; or
    • include, in its assets, shares held by it, in its holding company.
  1. As amended; the latest amendment is by way of Act 24 of 2013, which came into force on 28 February 2014. 

  2. There are various exceptions to this: pension funds, friendly societies, medical schemes, co-ops, the Land Bank, and short-term insurers. 

  3. Section 66(2) read with section 7(1)(a). 

  4. Section 66(1)(b) read with section 8(1)(b). 

  5. Section 66(1)(a) read with section 4(4). 

  6. Section 67(1)(a) read with section 22(1). 

  7. Section 66(1)(b) read with section 8(1)(a). 

  8. Section 66(1)(d) read with section 9. 

  9. Section 67(1)(b) read with section 48(2). 

  10. This does not apply where the long-term insurer is making the loan to one of its policy holders. 

  11. Section 67(1)(b) read with section 44(1)(a). 

  12. Section 67(1)(b) read with section 45. 

  13. Section 67(1)(b) read with section 49. 

  14. Section 67(1)(b) read with section 49. 

  15. Section 67(1)(b) read with section 48(1). 

  16. Section 67(1)(b) read with section 7(1)(b). 

  17. Section 67(2) read with section 20(1) and (2). 

  18. Section 67(2) read with section 20(4). 

  19. Section 67(2) read with section 46. 

  20. Section 67(2) read with section 29. 

  21. Section 67(2) read with section 30(1). 

  22. Section 67(2) read with section 34(1).