The RDR status review, published in December 2016, contained the following information concerning short term remuneration, and specifically regarding additional fees currently charged under section 8(5) of the Short Term Insurance Act.
(f) Proposal UU (short-term): Remuneration for selling and servicing short-term insurance policies
The current section 8(5) of the STIA11, which provides for an additional fee to be paid to an intermediary by the policyholder, over and above commission, binder or outsourcing fees from the insurer, will be replaced by a new Part 5C of the STIA Regulations. This Part 5C will continue to permit such an additional fee to be paid by the policyholder, but subject to the following safeguards:
- The fee must relate to an actual service provided to a policyholder, which service is not part of the “services as intermediary” for which commission is payable
- The fee must not relate to any other service for which the intermediary has been remunerated by another person
- The fee must be reasonable and commensurate with the service rendered
- The amount and purpose of the fee must be explicitly agreed to by the policyholder in writing.
This provision is intended to address our concerns that the purpose and appropriateness of current so-called “section 8(5) fees” is in many cases unclear and apparently unjustified.
Once the broader remuneration model for short-term insurance policies is finalised, the need to retain or further amend this Part 5C will be reviewed.