The Short-term Insurance Act is exempt from the provisions of
the CPA for a period of 18 months until 1 October 2012. Those
insurance sector lows must be aligned with the consumer protection
measures in the CPA or the provisions of the CPA will apply to
insurers. The CPA protects, as consumers, all individual natural
persons and small business with assets or annual turnover less than
On a permanent basis, advice or intermediary services provided
by or on behalf of insurers under the Financial Advisory and
Intermediary Services Act are exempted entirely because the FAIS
Act already provides adequate consumer protection.
There are many provisions in the Consumer Protection Act that
will need careful consideration when insurance laws are aligned in
October 2012. Shifting of risk, disclaimers and exemptions are
presumed to be unfair unless in the circumstances they are shown to
be fair certain disclaimers and exemptions are either unfair or
need to be drawn to the consumer's attention in a plain manner
and in plain language with a full explanation of the implications
for the consumer.
Insurers must also bear in mind that they will be bound by the
Consumer Protection Act in relation to business which is not
related to the underwriting and assumption of risks, or the
provision of advice and intermediary services under the FAIS Act.
Insurers who engage in other business or activities will have to be
aware of the provisions of the CPA. Even something as simple as an
'owner's risk' clause in a parking garage attached to
the business of the insurer will require minimum compliance in
regard to any disclaimer.
Insurers who deal in replacement goods or salvage will have to
take into account provisions of the CPA whenever they deal with
protected consumers (including all natural persons) in a
transaction not directly related to the insurance policy. Even if
the salvage is disposed of on behalf of the insured (urgently after
a fire for instance) and goods are sold to a protected consumer
(any individual or small business), then the CPA will have to be
complied with in all its details. Consumers have extensive rights
in relation to goods purchased and those rights may only be limited
by the supplier giving a specific description of any potential
defects in the goods or the circumstances affecting the sale. If
secondhand salvaged goods are being disposed of, a very clear
description of the state of what is being sold will be necessary.
If the goods sold present a significant risk of personal injury or
damage to property because of defects resulting from damage or if
their quality cannot be warranted in any way, then this needs to be
pointed out to the consumer even if the defect is patent. If the
goods sold actually cause someone personal injury or damage to
property, the affected person can claim damages without proving
negligence even if the goods were sold to a corporate buyer.
There will be major contractual challenges for insurers when the
CPA provisions (or the policyholder protection equivalent) apply to
insurers in October 2012. Insurers should not wait till October
2012 before thinking about what is required of them and policies
must be considered now.
A further consideration is the use of administration companies.
If the insurer uses an administrator (as opposed to an intermediary
governed by the FAIS Act), the administrator will not be entitled
to the exemption relating to FAIS Act advice and intermediary
services. Administration services will be governed by the Consumer
Protection Act. For instance, the services to a consumer have to be
of a standard that the consumer is generally entitled to expect and
services must be performed on time or within a reasonable time if
there is no specific deadline.
In short, any supply of goods or service to an individual or
small business consumer is closely governed by the CPA if it is not
an exempted insurance or FAIS transaction. Insurers must consider
everything they supply to individuals or small businesses to see
that they are compliant.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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