National Treasury Department:

Process

INSURANCE LAWS AMENDMENT BILL, 2008

REPORT BACK TO PCOF ON FRIDAY 13 JUNE 2008:

Since National Treasury responded to comments received on the Insurance Laws Amendment Bill (ILAB) at last week's PCoF session on Friday 6 June 2008, the following timetable is recorded:

Friday 6 June: Stakeholders are invited to public consultative forum on the ILAB to be hosted by the National Treasury. Announcement made at the PCoF meeting and via email to all those submitting comments to NT or PCoF.

Monday 9 June: Tabled Bill and Matrix of Comments (with FSB / National Treasury responses to such comments) circulated to stakeholders and posted on the National Treasury website. Stakeholders are invited to provide further written comments on the wording of the ILAB.

Tuesday 10 June: Public Consultative Forum is well attended by a broad spectrum of industry representatives. Stakeholders are again invited to provide further written comments on the wording of the ILAB. The National Treasury commits to releasing an amended version of the ILAB by 12 noon the following day, to accommodate industry comment and input (where deemed appropriate), and that will give industry a further opportunity to comment on wording and substance of the ILAB.

Wednesday 11 June: National Treasury circulates the amended version of the Tabled ILAB, with tracked changes, and invites further comment by stakeholders by 12 noon on Thursday 12 June.

Thursday 12 June: Written comments are received from broad range of stakeholders. These are considered by the National Treasury and FSB and accommodated into the A-Bill where deemed appropriate.

Friday 13 June:	The National Treasury returns to PCoF with a refined version of the ILAB, submitted as the Tabled ILAB with tracked changes aligned with the submitted A-Bill. National Treasury believes that there has been a relatively shorter but intense (and broad-reaching) consultative process, and emphasises that while consensus has not been totally achieved, the desired outcome is one of active engagement and consultation, which unfortunately may not always yield a consensual result.

Main issues raised at the Forum

1) Proposed health demarcation amendments

Comment received:

•	The wording introduces regulatory uncertainty into the provision of health related insurance;

•	Product regulation is too onerous for insurers and undermines product innovation; and

•	Transitional arrangements unclear and could create uncertainty in the regulatory treatment between the Insurance and Medical Schemes Acts i.e. if amendments are enacted through the Medical Schemes Act ahead of the proposed amendments to the Long-term and Short-term Insurance Acts, insurance providers could have exposed products.

National Treasury / FSB response: These issues have been clarified and resolved. Specifically, it is acknowledged that the court ruling obtained in the Short-term sector cannot be seen to provide certainty against the backdrop of an evolving health policy space, especially as a court ruling is not equivalent to policy determination. In the long-term space, an industry agreement around demarcation is already in place. The proposed regulations will give legal standing to such demarcation agreements.

It must also be noted that the Department of Health did not attend the workshop as they are in agreement with the revised wording (as presented in the A-Bill). The Council for Medical Schemes is also in agreement.

2) Binder agreements

•	There was broad agreement that industry concerns had been dealt with through the proposal to deal with details of various aspects of binder agreements through regulations. This was subject to comfort that there would be timeous and thorough consultation with all stakeholders in determining the regulations;

•	A reference to contractual savings insofar as the classification of "intermediary" and overlapping commission issues, requesting that these issues all be dealt with together;

•	Related, it was requested that "independent intermediary" be defined;

•	Wording clarification was requested on some sub-sections;

•	Clarity was requested regarding who could paid and for what service;

•	The overlap for underwriting managers between the Long-term and Short- 	term Insurance Acts and F AIS was queried;

•	Wording of sub-clause (4) implies a contravention will be against the written agreement (i.e. is not written into the written agreement) rather than the contravention itself.

National Treasury / FSB response: Any contravention of insurance legislation by an insurer is a contravention. As the auditor is seen as an extension of the supervisor, the proposed amendment is retained.

•	Expanded reporting obligations for statutory actuary too onerous and requirements on the actuary should not be subject to criminal liability.

National Treasury / FSB response: Recognise that the r9le of the statutory actuary is not one of compliance officer and therefore agree to restrict reporting obligations to areas that around the financial condition of the insurer. However, the statutory actuary in performing its obligations should be held liable for his/her contraventions of the Act.

•	Allowing the Registrar to revalue assets if applied retrospectively could impact past decisions e.g. relating to signed audited financial statements or dividend distributions. National Treasury / FSB response: Clarify that the revaluing will only be for statutory purposes (for establishing solvency) and should in any case not be interpreted to apply retrospectively.

•	Statement of Intent SOl: the maturity value should also be protected through a change to Section 54 to ensure that the regulations introduced last ear are empowered through legislation. National Treasury / FSB response: Agree, and have reworded Section 54 accordingly. This will give further backing to the SOl commitments.

•	Criminalisation through Sections 66 and 67 in the L TIA and Sections 64 and 65 in the STIA: National Treasury / FSB response: The Section has been reverted to the wording of the principal Act, with binder agreements and statutory actuaries added. Provisions with respect to statutory actuaries have been amended as described above.

4) Insufficient time allowed for processing of Bill and consultations

Comment received:

•	The proposed Bill could be challenged on the grounds of insufficient time granted for consultation.

National Treasury / FSB response: Disagree. The parliamentary process has facilitated rigorous consultation with a broad range of relevant stakeholders, and has provided strong evidence of this fact. Further, there is broad agreement amongst stakeholders on substantive policy issues, particularly with respect to obligations on and regulatory treatment of statutory actuaries and auditors, binder agreements and the demarcation between health insurance and medical schemes.

The areas on which further consultation is required relate to the technical issues and detailed proposals which, it is proposed, are to be dealt with through regulation. The