In a recent matter between the Registrar of Long-term insurance and AVBOB (the respondent) it was agreed that AVBOB will pay a penalty of R100 000 for contravening the Policy Holder Protection Rules (Long-term Insurance), 2004.
Rule 5.1 states that “an insurer must, where an agreement has been entered into with an intermediary in connection with the insurance products of that insure, furnish the intermediary with a written copy setting out the terms and conditions thereof, provided that an insurer may on or after the commencement date only enter into such an agreement if the intermediary has, where lawfully required been issued with a licence for the rendering of intermediary services in terms of section 8 of the FAIS Act, or is, where lawfully required, a representative as contemplated in that Act of any such licensee.”
How did the respondent contravene rule 5.1?
AVBOB entered into an intermediary agreement with an intermediary in October 2010 to render services in respects of a savings product that AVBOB offered.
However, on 10 December 2014, the authorisation to render services as an intermediary in respect of certain financial products, including savings products, was withdrawn by the FSB. The intermediary nonetheless continued to render these services for and on behalf of AVBOB until April 2016.
The mitigating factors included that AVBOB accepted responsibility for the contravention, cooperated with the FSB and Registrar of Long-term insurance and undertook to implement measures to prevent future breaches of the PPRs occurring.
The following aggravating factors were relevant in this matter:
- The conduct of AVBOB failed to demonstrate sound insurance principles and practices in the interest of the policyholders.
- The intermediary rendered services to 69 clients in respect of the savings product during the period in question.
- AVBOB was not aware of the licence changes of the intermediary until it was brought to its attention by the FSB.
- The contravention continued for a considerable period from December 2014 to April 2016.
The FSB regularly publishes details of licence changes, including suspensions, cancellations and lifting of such restrictions. It is imperative that these records be scrutinised on a regular basis. Routine checks on the FSB website should also form part of an FSP’s duties.