Clarity on Co-Administration Agreements

Information Letter 2 of 2014, issued on 29 August, provides clear guidelines on what co-administration agreements should contain, and what not.

The Registrar of Long-term Insurance is concerned that certain existing agreements do not comply with the spirit and intentions of the Act. The remuneration of funeral parlours, in particular, is a concern for the Registrar, despite the view held by certain insurers, funeral administrators and funeral parlours that the current arrangements comply with the provisions of both the Long-Term Insurance Act (LTIA) and the FAIS Act.

These agreements are not consistent with the legislative framework. This is so because it is evident that these co-administration agreements relate to the rendering or performing of regulated functions and services (intermediary services, binder functions and outsourced services) only.

The arguments referred to in paragraph 2.3 (regarding compliance with the stated Acts) are therefore superficial and designed to circumvent the legislative framework, specifically in respect of remuneration matters.

These agreements are not in the public interest and give rise to serious business conduct concerns as they —

  1. Create untenable conflicts of interest and inappropriate incentives for, or behaviour by, funeral parlours and / or funeral administrators;
  2. create unlevel playing fields between insurers;
  3. seriously undermine appropriate, affordable and fair treatment of potential and existing policyholders (including members of group schemes); and
  4. bring the insurance industry into disrepute.

The Registrar then proceeds to clarify how certain agreements fly in the face of both the Remuneration prescriptions of the LTIA and the requirements of FAIS in respect of Financial Soundness and reporting thereof.

The Information letter further stipulates the following:

  • Insurers must refrain from entering into new co-administration agreements and amend existing agreements to comply with the legislative framework.
  • Insurers must ensure that all existing co-administration agreements are aligned with the legislative framework and this Information Letter by no later than 120 days after the issue date of the Information Letter.
  • An insurer that is not able to align its agreements with the legislative framework and this Information Letter within 120 days, must notify the Registrar accordingly within 60 days after the issue date of the Information Letter (29 August 2014).

Please click here to download a full copy of Information Letter 2/2014.

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