The Minister of Finance (the Minister) published proposed amendments to the regulations made in terms of the Short-Term Insurance Act, 53 of 1998 (the Insurance Act), on Friday 2 March 2012.
The amendments relate to policies that will, in future, qualify as "accident and health" policies in terms of the Insurance Act. This will follow future amendments to the Medical Schemes Act, 131 of 1998, relating to the definition of "business of a medical scheme" (in section 1 of the Medical Schemes Act) as well as the proposed amendments to the definitions of "accident and health policies" (in section 1 of the Insurance Act) coming into operation.
The amendments to the regulations are made with reference to the Minister's powers set out in section 70(2A) of the Insurance Act, which came into force on 5 November 2008 in terms of the Insurance Laws Amendment Act, 27 of 2008.
Essentially, these sections grant the Minister the power to categorise certain products as insurance products even if they fall, on a literal interpretation, within the scope and ambit of the definition of "business of a medical scheme".
The proposed amendments to the Medical Schemes Act, 1998 are currently under consideration by National Treasury in terms of the Financial Services Laws General Amendment Bill. Interested parties were called to make written submissions and provide comments on the proposed amendments to the National Treasury before 23 April 2012.
It is envisaged that the amendments will provide for an amended definition of "business of a medical scheme". The "business of a medical scheme" will be defined as follows:
"the business of undertaking a liability in return for a premium or contribution -
1. to make provision for obtaining any relevant health service;
2. to grant assistance in defraying expenditure incurred in connection with rendering of any relevant health service;
3. where applicable, to render a relevant health service, either by the medical scheme itself or by any supplier or group of suppliers of a relevant health service or by any person, in association with or in terms of an agreement with a medical scheme; or
4. to undertake two or more of the activities referred to under paragraphs (a), (b) or (c)".
The definition of an "accident and health policy" in terms of the Insurance Act will in turn be amended as follows:
"A contract in terms of which a person, in return for a premium, undertakes to provide policy benefits upon a health event, and includes a reinsurance policy in respect of such a contract -
1. excluding any contract -
2. that provides for the conducting of the business of a medical scheme referred to in section 1(1) of the Medical Schemes Act; or
3. of which the policyholder is a medical scheme registered under the Medical Schemes Act, and which contract -
- relates to a particular member of the scheme or to the beneficiaries of that member; and
- is entered into by the medical scheme to fund in whole or in part its liability to the member or the beneficiaries of the member referred to in subparagraph (aa) in terms of its rules; but
4. specifically including, notwithstanding paragraph (a)(i), any contracts identified by the Minister by regulation as a health policy or accident and health policy".
It is suggested that the following products may be offered and underwritten by short-term insurers and qualify as: "business of a medical scheme":
- Lump sum or income replacement policy benefits payable in the event of a health event;
- Third party liability benefits payable in the event of theft or accident to a vehicle, including the costs of the health service following the injury of the occupants in the vehicle as a result of an accident which may be linked to the actual costs or expenses of the relevant health service;
- Third party liability benefits payable in the event of theft or damages to property, including the costs of the health service following the injury of third parties while on the property and/or compensation for bodily injury as a result of violent and external means which may be linked to the actual costs or expenses of the relevant health service;
- HIV and Aids benefits payable for HIV-related testing and HIV and Aids treatments benefits which may be linked to the actual costs or expenses of a relevant health service and which may be payable to a relevant health service provider; and
- International and domestic travel insurance which covers costs associated with a relevant health service incurred whilst travelling as a result of a health, disability or death event, which may be linked to the actual costs or expenses of the relevant health service and payable to the health service provider.
Notably, such products even on a literal interpretation, qualify as "business of a medical scheme":
However the above mentioned products may not:
- provide that the policyholder or insured person must be a member of a medical scheme;
- entitle the insurer to refuse any claim for policy benefits on the grounds that the policyholder or insured person had experienced a health event prior to the commencement of the applicable cover, unless material misrepresentation or nondisclosure in regard to such health event has occurred;
- provide for the cancellation, variation or non-renewal of the contract by the insurer as a result of the health or claims experience of a policyholder or insured person, unless material misrepresentation or non-disclosure in regard to the insured person's health or claims experience has occurred; and
- provide policy benefits that are fully or partially related to indemnifying the policyholder against medical expenses incurred in respect of a relevant health service; or
- in relation to a contract referred to as lump sum or income replacement, motor third party liability and property third party liability allow a cession of benefit.
A contract referred to as lump sum or income replacement must:
- provide for a 90-day notice of termination period to a policyholder if an insurer no longer will be offering contracts that relate to the same or similar policy benefits, or the same event as part of its short-term insurance business.
- state in clear and in easily understood language:
- identify those representations made by or on behalf of the policyholder or an insured person to the insurer which were regarded by that insurer as material to its assessment of the risks under the policy;
- state the premiums payable and the policy benefits to be provided under the policy; and
- state the events in respect of which the policy benefits are to be provided and the circumstances (if any) in which those benefits are not to be provided.
The draft regulations provide for transitional arrangements, namely, that all insurers must, within three months after the regulations come into operation, disclose all existing health policies and accident and health policies to the Registrar of Insurance and to the Registrar of Medical Schemes.
The Registrar of Insurance may then either:
1. instruct the insurer to stop offering or renewing those policies and within 90 days terminate any similar health policies or accident and health policies; or
2. instruct the insurer to amend any benefits before offering those health policies.
The draft regulations provide for specific marketing criteria to the effect that the policies and benefits may not be identified by the term "medical", "hospital" or any derivative thereof. In addition, one may not imply that the policy indemnifies a policyholder against medical expenses incurred as a result of a relevant health service or is a substitute for medical scheme membership. A prominent statement must be displayed to the effect that the policy does not provide cover that is equivalent to, or a substitute to, medical scheme membership. The draft regulations also provide for specific contracting terms.
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.