Draft Insurance Laws Amendment Bill Public hearings

NCOP Finance

05 August 2008
Chairperson: Mr T Ralane (ANC, Free State)
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Meeting Summary

The Committee heard submissions on the Insurance Laws Amendment Bill. A Member of the Committee questioned why these submissions were being allowed, as they had missed the deadline for making submissions to the Portfolio Committee and it appeared that they were trying to use the back door. The Chairperson, whilst having sympathy for the view, maintained that this Committee had its own mandate, that there was a need to consult widely, even more so because of the several difficulties with the Bill. He therefore ruled that the submissions could be given.

Day1 Health made their submissions through their attorneys, Lindsay Keller, and through Advocate P Buirski. 
Concern was expressed that the regulations that were supposed to support the Bill had not been drafted, and there were fears that these might contain provisions that could expand or amend the intended provisions of the bill. Certain of the clauses were contradictory to each other. It was pointed out that the Supreme Court of Appeal had already ruled what fell within and outside the area of medical schemes and it was not necessary to try to deal with this in the Bill, which was actually precluding short term insurers from participating in certain business activities. The report from the Melamed Commission of Enquiry seemed to have been overlooked when drafting the present Bill and this too had confirmed the approaches to health and short term insurance distinctions. The proposed restriction on medical expenses was regarded as unwarranted, and as reverting to old practices. The respective areas of responsibility were not properly defined. The perception was that the young and healthy were moving to health insurance rather than medical aid, but this was not the experience of Day1. The submission was further made that there was no reason to amend certain definitions but that there was no certainty whether other definitions across different pieces of legislation were complementary. The distinction between health and insurance products needed to be clarified, especially since the clauses differed in the different versions of the Bill. It also criticised the insufficient allowance for transitional arrangements between the old and the new legislation. A further point was made in relation to the use of “in consultation” or “after consultation” in relation to the Ministerial consultations. It was feared that the adoption of the Bill would put an end to innovative products at the lower end of the market.

The Financial Services Board commented that the previous legislation had not been adequate and there was a need to clearly distinguish between short term insurance and medical aid scheme provisions. He said that the judgment referred to in the previous submission had been based on the Short Term Insurance Act and that it could not simply be applied to other legislation. It believed that there were sufficient checks and balances around consultation and that the guidelines for the regulations would further regularize the position. It agreed on the need for certainty and consistency. It felt that some of the submissions were biased in favour of their own sector and did not look at the broader picture.

Ainslow Management Consultants took issue with the proposed Section 48A,saying that it would not improve the current uncertainty around Section 48 of the Short Term Insurance Act. However, it pointed out that the Bill was aiming to cater to the wider industry than Day1 alone, and that other views should be taken into account. 

Mutual and Federal indicated that the very fact that different players had different views was illustrative of some of the problems and all the more reason to create certainty in the Bill rather than leaving matters to regulation.
If the present uncertainties continued, Mutual and Federal were likely not to participate in the market any longer as they would not like to spend money and effort on planning only to be excluded from the market, and that this would not benefit the consumers. There had, prior to 1994, been too much legislation-by-delegation under regulations and this situation should be avoided.

National Treasury commented that there was increased public participation and that there was progress being made. Checks and balances would be brought into play.

The Committee confirmed that there should be further negotiation and that were still matters to be dealt with.

Meeting report

Insurance Laws Amendment Bill (the Bill)
The Chairperson noted that the Committee, after receiving submissions from the public on the Insurance Laws Amendment Bill (the Bill) had later received a very powerful letter from Day 1 Health and therefore this body and Mutual and Federal had been invited to attend. He noted the presence of and welcomed the team from National Treasury (NT). He said that three other proposed presenters had either withdrawn their request or were not in attendance.

Day 1 Health Submission
Adv P Buirski, a practicing Advocate from Johannesburg, noted that he was making the submissions on instructions from Lindsay Keller Attorneys, who had made the written submission for Day 1 Health. He was also a shareholder and Director of Day 1 Health. He hoped that his assertions may clarify the Bill.

Adv Buirski was concerned about Section 70(2)(b) and the fact that the Regulations that were intended to accompany this Bill had not yet been drafted, and that accordingly it was felt that there was a possibility of the regulations containing provisions which might expand, amend or greatly alter the intended provisions of the Bill.
Further, he submitted that clauses 8 and 5 were contradictory, if not directly at odds with one another.

He submitted that the question of the demarcation to be achieved gave rise to uncertainty and that this was unnecessary as the Supreme Court of Appeal had recently given a decision as to what fell within, and what fell outside, the area of Medical Schemes. By contrast the Short Term Insurance Companies were precluded, in terms of the Bill, from participating in business activities which they felt fell rightly within their sphere of operation and where they might produce very real benefits for the consumers.

The Chairperson stated that the Lindsay Keller written submission highlighted such discrepancies on page 3 of their written presentation.

Adv Buirski continued that certainty was required from the Law and this Bill. He submitted that this had been the stance of the Supreme Court of Appeal (SCA) in a reportable case, No 168/2007, concerning the Registrar of Medical Schemes, which had not yet been published in the law reports. 

He submitted that the whole scheme of the organisation and correlation of business activities should be integrated under clauses (a), (b) and (c) under the broad Health Policy scope, and that the SCA had found that,  read conjunctively, all three such activities were excluded from the operations prescribed.  He submitted that activities for Health had been defined and demarcated, firstly under personal accident insurance before the category of medical aid schemes had been recognized, in Act 27 of 1947, and secondly under the Short Term Insurance Act (STIA) No 53 of 1998. These activities were thus well recognised at law. There was no need to “reinvent the wheel” as even the definition from an older Act had been readily accepted in terms of the Medical Schemes Act of 1967. He stressed that the SCA had already stated that there was a need for insurance to address the practical reality. The Registrar of Medical Schemes already followed this ruling.

Adv Buirski furthermore submitted that the Committee should bear in mind that before the change over in 1994 there had been the Melamed Commission of Enquiry into the provision of Health Services, when the ANC, then in its capacity as non-governmental organisation (NGO), had made representations. The Report of that Commission, presented on 14 April 1994, which seemed to have been overlooked in drafting the present Bill, had confirmed the previous approach to health and Short Term Insurance distinctions, and market investigations related to them.

Adv Buirski noted that Mr Alex van den Heever (then of the Industrial Development Corporation), had not been a formal member of this Commission but had been accepted as an ad hoc member, had done the majority of the research, and had been commended by the Chairman on the completion of the report. The ANC had contributed to every meeting of the Commission.

One issue arose from the Melamed Commission’s report around Short Term Insurers being allowed to offer products to pay for medical expenses, which the Melamed Commission had accepted. It was submitted that the proposed restriction on medical expenses was unwarranted competition, that medical insurers be allowed to offer medical insurance. This submission reflected the practices of the past.

He respectfully submitted that Parliament’s passing of legislation should not be done without proper deliberation, which included sufficient and wide consultation. He proposed that the status quo should be retained.

The Chairperson interjected to ask whether his submission were new.

Adv Buirski conceded that they might be viewed as such. He could clarify if he continued with his intended presentation.

Adv Buirski pointed out that clause 18 on page 14 provided for the enacting of certain regulations, but at this stage there was no clarity as to what the regulations might be, who might be enacting them. There was also no clarification given to the demarcation between the Financial Services Board (FSB) or the Ministers of Finances and Health; it was currently stated that this would be clarified at the appropriate time.

Adv Buirski said that the previous legislation had created gaps. There was an assurance given that the Registrar was attending to it. However, when the regulations were enacted they gave rise to litigation to seek clarity on a situation which, in practice, differed from the intention of parliament.

Adv Buirski noted the general perception that the young and possibly healthy were turning away from Medical Aid Schemes with a built in cross transference or subsidisation, in favour of Health Insurance designed for the particular and peculiar circumstances of the insured. Day1 Health’s experiences did not match this perception. The average age of their insured clients was between 40 and 50, contrary to market place assumptions.

Adv Buirski drew to the attention of the Committee that when the Bill was first drafted it bore a different registration number from that it currently had. The intention of the Bill seemed to differ from the intention stated in the Memorandum of Objects.

He submitted that certain definitions were already adequate and that there was no reason to change them. He questioned whether the definitions as used in the Long and Short Term Insurance and Medical Schemes Acts were complementary, and whether they would result in this Bill achieving its intention. He felt that the differing definitions and the intention to refer the accident and health policy to the Ministers created uncertainty, as there is no precise demarcation.

Clauses 23 and 53 of the Bill reflected an intention to refer to the Minister to have precise definitions. At best this would postpone the decision of the Minister regarding the regulations. He submitted that the parameters for the decision on what were Health products and what were Short Term insurance products remained vague. They gave no certainty to the short term insurance industry and in no way protected rights afforded by existing legislation. Furthermore this version of the clause differed from the clause in the Bill that was published for comment. The uncertainty was the nub of the matter. There were a number of questions not being dealt with in the Bill, and this was not acceptable when dealing with an industry that was very valuable to the country.

Adv Buirski criticised the insufficient allowance for transitional arrangements between the old and the new legislation, although the detail might be in the regulations.

Adv Buirski drew attention to the case of McDonald ats Registrar of Medical Schemes, where the SCA had distinguished between the phrases “in consultation” and “after consultation with”. He thought that the legal drafters were well aware of the distinction. He explained that “in consultation” meant that the opinions must be listened to, whereas “after consultation with” implied the necessity to reach a sharing of minds. He submitted that the proposed wording did not reflect the meeting of the minds as envisaged in the McDonald case. Therefore this legislation would not interact with the Medical Schemes Amendment Bill, and was vague. A reasonable person would not be able to reasonably discern what fell into the one category and what into the other and then there was the danger that the regulations would establish an entirely different regime.

Mr R Blackman, Managing Director, Day1 Health, then addressed the Committee and asserted that the uncertainty should the current Bill be adopted would put an end to innovative products, to the detriment of the consumer, and therefore would affect anyone who paid less than R70 a month. The current policy of Day1 designed for this market provided R1 500.00 per day hospitalization for 31 days and a lump sum payment if a person was exposed to HIV AIDS accidentally. The scheme was primarily aimed at blue collar workers. The average age of clients was 45 to 50 years, and the scheme was practicable and affordable.

The Chairperson summarised the submissions. Consideration was being given to other legislation. One suggestion had been simply to leave the Bill.

Mr Wayne Venter, Attorney with Lindsay Keller,submitted that there were substantial problems with the current version of the Bill.

The Chairperson said that he was aware that with any proposed legislation there could be unintended consequences. He personally would be in favour of consulting as widely as possible to minimise unintended consequences. Although there might be some repetition, he suggested that the submissions be heard.

Mr E Sogoni (ANC, Gauteng) expressed concern that this might set an unfortunate precedent and that the presenters were trying to take two bites at the cherry. He asserted that the Portfolio Committee had called for representations, that Lindsay Keller had missed the deadline, and was now attempting to present to this Committee what they should have put before the Portfolio Committee. He regarded those representations as not only out of time, but also out of place. The Constitutional Court had addressed the need for and extent of public hearings, submissions and participation. There had to be participation, but there was no prescription what form this should take. If the public failed to respond on time (or at all) to requests or invitations for submissions, they should not still be allowed to use the back door should they change their mind. He suggested that neither Day1 Health nor Mutual & Federal should be allowed to proceed.

The Chairperson had some sympathy for Mr Sogoni’s view. However, he suggested everybody be allowed to make their representations, including National Treasury.

Mr Sogoni said that the people of Khutsong had been deprived of opportunities to address Committees and he did not see why lawyers should now be able to have a better chance. He questioned what a lack of consultation really meant. He did not feel that people should be heard over and over again. The Memorandum on the Objects was quite explicit enough. The Bill had been published. People had been given the opportunity to respond. If they had missed the deadlines that was not the fault of the Committee.

Mr D Botha (ANC, Limpopo) noted that National Treasury was apparently making representations on the day that Day1 sought to do so, and that was why it was making representations today. He noted that this Committee must not be regarded as a rubber stamp, and they acted independently of the NA Committee.

Ms D Robinson (DA, Western Cape) believed that the Committee should hear the presentations.

The Chairperson agreed that it was not so much the time periods that were important as the public issues, and if the public had insufficient opportunity this would reflect badly on Parliament.

Mr B Mkahliphi (ANC, Mpumulanga) said that there had been reference to existing rights and transitional rights and he wished to have an explanation of these and whose rights they were. There seemed to him to be a lacuna and he would appreciate clarification.

Mr Wayne Venter, Attorney with Lindsay Keller, then placed on record that the Bill had been published on 8 May 2008. The cut off date was less than the 30 day cut-off stated. Due to exigencies of staff and time Lindsay Keller had not been able to complete their presentation by 23 May 2008. The Registrar of Medical schemes, whose memorandum was needed as a basis for the submissions, failing which inadequate facts were available, had only issued his memorandum on 28 May. On 1 August the Road Accident Fund had changed the provisions of the compensation, and the manner in which it was paid, for road accident victims. The changes, which were substantial, were effected largely under the regulations provisions. Therefore there was a real fear that the regulations provisions in this Bill might be used to the same effect. He himself was feeling the pinch; he had two young children who needed medical treatment and had already exhausted his medical aid scheme for this year. He submitted that he was in a similar position to many families. There was a need for top up short term medical assistance schemes.

Adv Buirski outlined the chronology of the events consequent to the publication of the Bill.

Financial Services Board (FSB) Comment
Mr Jonathan Dixon, Head: Insurance, Financial Services Board, confirmed the chronology as outlined by Mr Buirski.  Mr Dixon then stated that there had been reference to previous legislation, and submissions that this was adequate and that there was no reason to effect changes. He said that it was the very distinction between an “and” and an “or” that had given rise to the judicial decisions referred to earlier. He therefore believed that such legislation was not adequate, and that there was a need to distinguish between Short Term Insurance Industry provisions and Medical Scheme provisions, without conflict or overlap between the two.

He further submitted that the SCA judgment referred to must be distinguished from medical scheme provisions. The judgment related to the Short Term Insurance Act and the two pieces of legislation could not comfortably  be compared.  He submitted that the envisaged regulations would be enacted by the Minister of Finance and the Minister of Health after consultation between them, and would be an effective combination of both their interests and resolve any potential disputes. He felt that regard to the guidelines for the regulations would remove areas of conflict or uncertainty. There was a need to achieve certainty and consistency.

Anslow Management Consultants Submission
Mr Robert Shaw, Consultant, Anslow Management Consultants, set out his extensive experience in the insurance industry, but stating that he was making this submission as a member of the public. He submitted that section 48 of the STIA had given rise to concern in the Industry ever since enactment, and that the proposed Section 48A contained in this Bill was likely to create similar concerns, because of its vagueness. Other industry concerns existed, other than those of Day1 Health, existed and should be taken into account so that common ground could be achieved.

Messrs Venter and Buirski summarised that they stood by their representation and re-iterated that the Bill is vague and likely to cause more problems than it solves.

The Chairperson emphasised that education and accessibility were vital; it was necessary to think just as much of the effects of the legislation on a young businessman and on an old rural woman.

Mutual and Federal (M&F) Submission
Ms Michelle Pedra, Compliance Officer, Mutual & Federal, submitted that the differences set out earlier illustrated the philosophical or jurisprudential problems arising from legislation by regulations, such as seemed to be in the Bill. She accepted that everything was done in good faith, but there remained the possibility of legislation-by-ambush via the regulations, which was not a healthy state of affairs and could create more problems than it solved. She submitted that  Mutual and Federal was working to comply with the requirements of Black Economic Empowerment, and as such was aiming at the lower end of the market. If the present uncertainties continued, M&F was likely to decide not to participate. She said that companies could not plan products and then have the carpet pulled out from under their feet at a late stage, as the planning was expensive and time consuming and that was one reason why legislative certainty was required She expressed the opinion that the FSB and the Short Term insurance industry had diametrically opposed starting points.

Mr Shaw echoed Ms Pedra’s remarks regarding the uncertainty and the expense of designing products for the market.

Mr Dixon stated that he felt that the submissions were too narrowly focused around the interests of those making the submissions and did not take into account the broader interests of the community

Ms Jo Ann Ferreira, Director: Legal Services, NT, said that with the increased public participation she felt that progress was being made towards resolving the situational impasse, that public interest and health policy must be co-ordinated and that affordability was the prime concern regarding any product.

Ms A Mchunu (IFP, Kwazulu Natal) said she felt that there were some good agreements, and that the product must be for the benefit of the person who consumes the product.

Mr Sogoni conceded that the Mutual & Federal had produced a good presentation but was of the opinion that it was limited to serving their own interests, not the wider community.

Ms Pedra said that there were fears around the arbitrary exercise of power. In much of the pre-1994 legislation power had been given to the Ministers to delegate. Delegated powers were given to those drawing the regulations, and the “legislation-by-delegation” had caused so many of the problems and unfortunate cases.

The Chairperson said that this reminded him of the argument between the politician, who held that politics was important, and his wife, who said the economy was important. It seemed that the latter had in fact been correct.

Mr Dixon asserted that a system of checks and balances would be built in into the system and that the National Treasury, the FSB, and the Short Term Insurance and Life Officers Associations would be co-operating and giving further attention to the Bill.

The Chairperson confirmed that there would be further negotiation, as there were matters still to be dealt with. 

The meeting was adjourned.


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