The purpose of the document is to provide guidance on:
- Activities that constitute binder functions
- Remuneration payable by the insurer to the binder holder and
- The Registrar’s interpretation of the regulations from a regulatory perspective.
This stems from the FSB’s view that “divergent interpretations have been applied … to various functions performed…” which resulted in instances of “unintended application and implementation”.
This led to a wide range of additional fees being paid for what actually constitutes binder functions. The Regulator’s concern is that this has the potential to lead to conflict of interest which could, obviously, be detrimental to clients.
The purpose of this note is therefore “…to ensure a consistent interpretation and application of the Binder regulations…” which will lead to compliance with it.
Moonstone Compliance sent the following general information regarding some of the points made in the note to its compliance officers.
- A Binder Holder may not receive an additional fee for activities that are required to adequately render a binder function (and as such cannot be separated from the performance of the binder function itself).
- An Insurer cannot outsource these ancillary activities if a Binder agreement is in place in respect of the binder function. They may, however, authorise a binder holder, through the binder agreement, to outsource the function.
- Where a Binder Holder chooses to outsource this ancillary activity, they must remunerate the third party from the Binder fee they receive – They may not recover any additional fees from the Insurer
- Where the ancillary activities are performed by a third party on behalf of the insurer (And not on behalf of a Binder Holder), the insurer may remunerate the third party by way of an “outsource fee”
“Enter into, vary or renew”
- The Issuing of policies (including the printing of policy wordings, policy schedules and the mailing thereof or the electronic dispatching to policy holders), by the binder holder, is seen as ancillary to the binder activity of concluding new contracts with policyholders or concluding policy renewals or endorsements, and hence is not deemed to be separate from the binder function, nor may it be separately remunerated when performed under a binder agreement.
- The addition of members to an assistance business group policy on behalf on an insurer, are deemed to be performing a binder function that must be subject to a binder agreement. Where an intermediary/Funeral Parlour offers a policy or membership in a group scheme, agrees thereto with a member and informs the insurer thereof after the fact, the intermediary/funeral parlour binds the insurer when the member accepts the offer of insurance, irrespective of qualifications for entering into that arrangement having been set by an insurer or not.
We advise those affected by Binder regulations to study the complete document. This is a complex matter, and therefore better to clarify matters now, rather than running the risk of having the FSB Enforcement Committee wack you with a hefty fine.
Comments on the draft information letter must be submitted to the FSB by no later than 31 May 2013 by means of an e-mail to INS.InfoLetter3@fsb.co.za.