The revised Policyholder Protection Rules (“PPR’s”) were published in the Government Gazette on the 15th December 2017. Not only do the PPR’s have a huge impact on the way that insurers do business, but in order for insurers to meet these new requirements, employers, funds and brokers must also change the way that they interact with insurers.
The rules come into effect in various stages, with some coming into operation on the date of publication of the notice in the Government Gazette (15th December 2017), and the rest at 6 month intervals, up to 24 months thereafter.
To add further complexity to matters, a Statement on Proposed Amendments to the Policyholder Protection Rules was published for comment on the 2 March 2018. These proposed amendments which among others provide for certain conduct of business related requirements as well as micro-insurance and funeral product standards. They are expected to come into operation on the 1st July 2018 to coincide with the expected commencement date of the Insurance Act and Prudential Standards to be made under that Act.
Although the intentions of the PPR’s are honourable, it is questionable as to whether the consequences of the PPR’s on Group Risk Insurance business will ultimately be to the benefit of the members.
Typically in group scheme arrangements, the employer or retirement fund purchases a group risk insurance policy on behalf of its members and acts as the policyholder. Group risk insurance is usually compulsory for members in the group, and is usually offered at the same rate for the members of the group as a result of various cross-subsidisation principles, for example between young and old, female and male, executives and blue collar workers etc.
As a result of the compulsory nature, the cross-subsidisation and the ability of the insurer to administer the scheme on a group basis and not at an individual level, group insurance has historically been substantially cheaper than individual insurance.
In the past, the employer and retirement fund (through a broker), in addition to being a single point of entry for the insurer (which is a large cost saving relative to individual policies), have been largely responsible for member communication and member level record keeping. All of this meant simplified and cheaper administration for the insurer, with minimal extra effort for the employer or fund on top of their payroll or retirement fund administration responsibilities.
As a result of the PPR’s simplified and cheaper group risk administration is no longer possible. One of the key changes introduced by the PPR’s, is that many of the obligations relating to policyholders contained in the PPR’s also apply in respect of individual members of a group scheme or fund policy and even includes potential policyholders and members. This includes providing certain information to the policyholder, and collecting information from the policyholder and members.
Where it is not practicable and an insurer relies on or permits a representative or mandates an independent intermediary, binder holder or any other person to provide or collect any of the prescribed information to or from the policyholder, the insurer remains responsible for ensuring that this is done in accordance with the regulations.
The prescribed information to be provided includes disclosures that could affect the rights, obligations or benefits of a member- such as premium, benefit structure or underwriting matters. The information that insurers are required to collect about members include (as a minimum) their names, identity numbers, and even contact details such as the mobile number and email addresses (where available).
Since the insurer must ultimately take responsibility for the provision and collection of the prescribed information, regardless of whether the employer or intermediary facilitates it, insurers will need to update their administration platforms to do member level administration to enable the detailed member information to be carried on their systems.
Furthermore, since this information would need to be provided by the employers or the retirement funds, the member data schedules submitted to the insurers by employers or retirement fund administrators will need to be expanded significantly. It is quite likely, that in order to maintain this information, employers would also need to update their payroll systems to include this contact information, and introduce processes to maintain it, so that any changes can be shared with the insurer in a timely manner.
Updating systems and implementing advanced communication strategies are expensive and time consuming. Insurers have been hard hit by the economic downturn, both in terms of costs and deteriorating claims experience, so the scale of changes required by the barrage of regulations, will most likely be passed on to the policyholders and members.
Group Risk Insurance providers will likely consider increasing their minimum scheme sizes or introducing minimum fees to administer the schemes. So together with the onerous information gathering and maintenance, these changes in costs could have a huge impact on employees of small, medium and micro-enterprises (also known as SMME’s), where Group Insurance would no longer be an option. Members would be expected to source their own individual insurance, however with higher costs, medical evidence requirements and high levels of apathy, it is likely that there would be a substantial increase in the under or uninsured population, which could potentially put even further strain on an already struggling state.
So although the regulations aim to keep members more informed, to enable better financial decision making, the unintended consequences are an increase in costs for insurers, retirement funds and employers, which could potentially result an increase in the number of people not insured.
 For purposes of this article “member” includes a member of a fund and an employee insured in terms of group insurance.