The new Insurance Act was promulgated in 1998. Before that the insurance industry was regulated by the Insurance Act of 1943, which was amended in 1977. There are a number of quite significant differences between the two Acts. Let’s take a look at two of them.

1943 versus 1998

Changes which most affect the consumer include differences in the requirement for arbitration and the in duplum exemption.

Even today a number of insurance policies include a condition that, where there is a dispute about the payment of a claim, the issue must be resolved through arbitration. This is a throwback to the 1943 Insurance Act which stated that the policy could contain the proviso that the insurer could demand that the amount of liability be determined by arbitration.

The insurer could also stipulate which arbitration regime would be used. This means that both insurer and insured had to comply with the decision of the arbitrator chosen by the insurer.

According to the 1998 Insurance Act an insurer cannot insist that a dispute can only be resolved by means of arbitration, although there is nothing to prevent the policy containing a clause providing for voluntary agreement to submit the dispute to arbitration.

However, the policy cannot exclude the policy holder’s right to take the dispute to court. So far, there is no detailed policy formulation dealing with arbitration, which can be as complex and long-winded as litigation, and probably more expensive, unless the Ombudsman is used.

A more disturbing change for policy holders is that of the in duplum rule. This rule simply states that, when unpaid interest is equal to the outstanding capital, no more interest can be charged.

This rule was in effect in the Insurance Act of 1943 but, through the influence of the Law Commission, was amended in 1977, giving the insurance industry exemption from the rule.

The exemption was removed in the 1998 Insurance Act, giving more protection to individual policy holders. However, despite complaints from associations such as COSATA, who pointed out that financial institutions were bound by the in duplum rule, the Insurance Amendment Bill of 2002 exempted the insurance industry once again from the rule, stating that a loan made against a long-term policy “shall not cease to accrue when the unpaid interest has accumulated to, or exceeds, an amount equal to the amount of that …. loan” This decision was backdated to 1999!

For many policy holders in South Africa their life insurance is the biggest asset they have. The exemption of the in duplum rule means, effectively, that those who are eligible to take out bank loans are protected by the law whereas those who have only their life insurance policy to fall back on are open to exploitation from the insurance companies.

It is interesting, but not unexpected, that the Life Offices’ Association was “primarily behind the bid to introduce this exemption”

Conclusion:

The new Insurance Act, in its original state, went a long way towards ensuring better protection for policy holders. Unfortunately subsequent amendments have indicated that the insurance industry still holds a great deal of influence in the corridors of power.