The charging of fees in the Short-term space, and particularly the so-called “administration fee”, has always been a bone of contention in the industry. Many elected to simply follow the ostrich approach and charge clients for doing something for which they are already compensated via commission, but this may not be the wisest move, going forward.
Rule 12.4.1 of the Policyholder Protection Rules (PPR), which comes into effect on 15 December 2018, is very specific in what is required before a client can be charged such a fee:
An insurer may not facilitate the deduction or charging of any fee payable by a policyholder to an intermediary or any other person, unless the insurer has satisfied itself that the amount and purpose of the fee have been explicitly agreed to by the policyholder in writing, and that it appears from such agreement that the fee –
- relates to an actual service provided to a policyholder;
- relates to a service other than rendering services as an intermediary; and
- does not result in the intermediary or other person being remunerated for any service that is also remunerated by the insurer.
Please note that this now places the onus on the insurer as well to see that the rules are obeyed.
In particular they must ensure that “…the amount and purpose of the fee have been explicitly agreed to by the policyholder in writing.”
In my view, “administration” is not an actual service, and forms part of rendering services as an intermediary for which commission is paid.
Take these pearls of wisdom from Joan Baez as a musical guideline:
You who are so good with words, and at keeping things vague
If you’re offering me diamonds and rust, I’ve already paid.
Remember, you and your insurer have to resolve this matter by 15 December.