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New laws with teeth to protect insurance policyholders Policyholder rights enjoy scant protection from legislation that has passed its jubilee date, but that will change next year, writes LUCIENNE FILD Banks will not be able to pressure bond holders into taking out policies with associated companies INSURANCE policyholders can look forward to an array of much-needed protection measures next year. Last week, the Long-term Insurance Act and the Short-term Insurance Act were passed, and they are expected to come into effect on January 1. Believe it or not, the insurance industry is currently regulated by legislation which is more than half a century old - the Insurance Act of 1943. The new Long-term Insurance Act, which applies to life assurers, offers a host of serious protective measures for policyholders - a far cry from the current Act which largely neglects their rights. William de Villiers, senior legal analyst at Old Mutual, outlines the important policyholder protection measures contained in the new legislation. The Long-Term Insurance Act All creditors demanding a life insurance policy from you as security for the debt must in future inform you in writing that you have certain rights. These include your right to submit an existing life policy instead of taking out a new one. You may choose the insurer and financial intermediary if a new policy is needed, and you can opt for an endowment policy instead of a life policy. You must then sign a document confirming that you were informed of your rights and not coerced into buying a policy. This measure should end the practice of some banks which pressure new mortgage bond holders to take out a life policy with an associated company. Insurers must ensure their products are financially sound before they are sold. If you pay premiums in cash, the person collecting the money from you on behalf of the insurer must issue you with a receipt. Details on the receipt must include their name, address and telephone number, as well as your policy number and the insurance company's name. If you pay premiums to someone acting for the insurer, the Act regards these payments as having been made directly to the insurance company. This means that as long as you make sure you pay an authorised representative of your insurer, the company cannot claim payment has not been received. An insurance company must issue you with a written summary of your policy details, in addition to your policy contract. This summary must acknowledge information provided by you which was fundamental in issuing the policy (for example, if you've had numerous knee operations and the insurer went ahead and approved disability cover). Your premiums, policy benefits and the circumstances under which benefits will be paid must be included in the summary. If you provide your insurance company with incorrect information, or you fail to disclose information, and such information is subsequently proved irrelevant to the underwriting of the risk, the assurer cannot invalidate the policy on this basis. But if you misrepresent your age, the assurer has the right to adjust premiums and benefits to reflect your true age. An insurance company must take full responsibility for actions of agents in their employ. Assistance, life, disability and health policies are protected against the creditors of insolvent or deceased estates, provided the policy was taken out on the life of the policyholder or spouse, and the policy has been in force for at least three years. However, the amount of benefit enjoying protection is R50 000 (it was R30 000). The new Act gives the registrar of long-term insurance the power to impose additional rules on the life insurance industry. The Act suggests that one such rule could in future give policyholders the right to cancel policies in particular circumstances and within a set time. This implies a cooling-off period, which now only applies to Life Offices Association members, for whom it is 21 days. The Short-term Insurance Act contains less extensive consumer protection regulation. But Caroline da Silva, executive director of the South African Insurance Association, says the new Act, together with proposed legislation regulating financial intermediaries, should provide you with sufficient cover. The Short-term Insurance Act The Financial Services Board (FSB) will have the power to step in and save short-term insurance companies in financial difficulties to ensure they meet commitments to clients. Previously the FSB could only get involved when it was effectively too late - that is, once a company had breached solvency margins and was entering liquidation. The new Act enables the FSB to institute civil action against an insurance company or broker accused of fraudulent or improper conduct. The Act enables the registrar for short-term insurance to impose additional policyholder protection rules. These could include provisions that the contract between an insurance company and the client must be user-friendly and fair, and that there must be full disclosure of product information and costs. Policyholders must receive their policy documents within 30 days of signing. Under the new Act, contraventions will be severely punished - the fine for serious contraventions was increased from R100 000 to R1-million. 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