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New Binder Fee Regulations Bring Consistency

An article in Moneyweb titled New insurance rules offer more protection, less bias discusses the introduction of a binder remuneration cap of 9% in amendments to the long- and short-term insurance regulations which became effective on 1 January 2018.

“Binder holders are third parties, who act as “front faces” for insurers and perform specific functions related to any type of policy. Per the respective Long-term and Short-term Insurance Acts, binder holders may perform the following functions on behalf of insurers:

  1. Enter into, vary or renew a long/short-term policy (excluding a long/short-term reinsurance policy)
  2. Determine the wording of a long/short-term policy
  3. Determine premiums under a long/short-term policy
  4. Determine the value of policy benefits under a long/short-term policy
  5. Settle claims under a long/short-term policy

The amended regulations mean binder holders, authorised to give advice under the Financial Advisory and Intermediary Services (Fais) Act, may receive a maximum of 9% in remuneration. The fee comprises 3.5% for entering into, varying or renewing policies, which may be increased to 5% should the aforementioned functions include determining policy wordings, premiums or benefits. A provision of 4% is made for settling claims, while binder holders who simply determine wordings, premiums or benefits are not entitled to a fee.”

Moonstone Compliance and Risk Management notes that that the binder fee caps referred to above apply to those Non-Mandated Intermediaries (NMIs) authorised for advice, or those NMIs who are associates of NMIs who are authorised for advice.

For all other binder holders (UMAs and NMIS not authorised for advice), the following stipulations from Regulation 5.7 applies:

(1) When remuneration is provided by or on behalf of an insurer to any person for rendering a binder function:

  1. such remuneration must be reasonable and commensurate with the actual cost of performing the binder function, taking into account the nature of the function and the resources, skills and competencies reasonably required to perform it;
  2. the payment of such remuneration must not result in the person being remunerated more than once for performing a similar function on behalf of the insurer and/or policyholder;
  3. any actual or potential conflicts between the interests of policyholders and the interests of the person receiving the remuneration must be effectively mitigated; and
  4. the payment of such remuneration must not impede the delivery of fair outcomes to policyholders.

Click here to read the full Moneyweb article.

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