FSCA extends exemption on payment for collecting premiums copy

FSCA extends exemption on payment for collecting premiums

The FSCA has extended for 12 months, to 31 January 2023, the exemption that allows independent intermediaries to receive compensation, over and above commission, for performing activities that support the direct collection of insurance premiums.

FSCA Communication 1 of 2022 (INS) said the exemption has been extended until further progress is made with the proposed amendments to the premium collection framework contained in the regulations under the Short-term Insurance Act and the Long-term Insurance Act.

This matter goes back to at least 2018, when the FSCA published an update on the work aimed at refining the premium collection regulatory framework for short-term and long-term insurers.

In April 2019, the FSCA published a position paper, titled “Proposals on the future regulatory framework for the collection of insurance premiums”. The paper:

  • Sets out the FSCA’s concerns about “certain undesirable industry practices” that have arisen from third-party premium collection; and
  • Contains proposals to encourage a shift towards direct collections becoming the default, while accommodating specialised third-party collections “where reasonably necessary and appropriate”.

The paper also proposed that, as an interim measure, insurers and independent intermediaries be granted an exemption from the commission regulations when remunerating intermediaries for performing certain collection-related activities where premiums are paid directly into an insurer’s bank account.

This proposal was given effect in draft exemption notices published for public comment in April 2020 and in insurance exemption notices 19 and 20 published in October of that year.

In January last year, the FSCA withdrew notices 19 and 20 and substituted them with notices 1 and 2 of 2021. This was a result of feedback from role-players in the direct collection industry that they were facing a number of practical obstacles to qualify for the exemptions.

Notices 1 and 2 of 2021 gave industry participants 12 months to make the system and contractual changes necessary to align their business practices with the regulatory framework.

Insurance notices 1 (short term) and 2 (long term) published at the end of last month do not change what was contained in the exemption notices of January 2021. The only change is the extension of the exemption to the end of January next year.

The FSCA reiterated that “undesirable practices in respect of the interest-sharing model and other undesirable practices as communicated in FSCA Communication 22 of 2020 are not supported”.

Insurers or intermediaries relying on the exemption to justify the payment of remuneration for the direct collection of premiums must meet the conditions set out in the exemption notices.

“All remuneration arrangements in this respect must be reasonable and commensurate with the direct collection services being performed, also taking into consideration the nature of the function and the systems required to perform such functions. The remuneration offered or paid may not result in the independent intermediary being remunerated more than once for performing a similar function in respect of the same policy on behalf of the insurer,” the FSCA said.

To download the notices, go to > Regulatory framework > Notices > Insurer/microinsurer > 2022

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