Insurance regulator looks to rule with heavy hand
THE recently published draft Insurance Bill illustrates what can happen if Parliament delegates over-extensive law-making powers to the regulator of an industry. Major policy imperatives get overridden by an overbearing wish by micromanagers to micro-manage from the wrong end of the problem.
Look at the background. We live in a country whose biggest threat is probably our unemployment figures that go up to 39% for young black males. The government sees the creation of employment as the highest priority in the National Development Plan. The insurance industry is an industry with assets of more than R2,200bn with most of it invested in the economy.
And it is an industry that paid claims in 2013 (life and non-life) exceeding R36bn to millions of satisfied customers. The industry is also an essential component to creating an investment culture among South Africans.
Despite this background, the regulator recently released lengthy, major but as yet uncertain changes to the way in which financial products will be sold. Existing and anticipated compliance issues have virtually halted new entrants into the broking market and driven many who have been there for years to sell up their businesses to those who can keep up with the ever-changing laws and high costs of compliance.
Against this background we now have the draft Insurance Bill. The insurance regulator (who is responsible for the drafting) wants to persuade Parliament that it should, as regulator, override other regulators, override the common law, put itself beyond review by the courts of its administrative decisions (and therefore outside the Bill of Rights) and be permitted to prescribe standards about everything and anything to do with the insurance industry without reference to Parliament.
It is an important principle of a constitutional democracy that, while the modern state can delegate the day-to-day implementation and regulation to a subordinate regulatory authority, it cannot abdicate its legislative powers under the guise of delegating regulatory functions. The powers that the bill proposes to delegate are not even restricted to powers over the formal insurance industry. The regulator is authorised to prescribe what types, kinds and categories of business fall into the scope of insurance laws.
Where an insurance company is part of a group of companies, the regulator wants to be able to determine what types of business that group is entitled to conduct and to order restructuring of the whole group if there is something that does not find favour with the regulator. All this is wrapped up in the broadest of discretionary powers which have the capacity to intrude on constitutional rights.
Everyone is in favour of the broad aims of modern insurance regulation which are to ensure the financial soundness of insurers and to ensure that insurance companies treat their customers fairly at all stages of their interaction with the insurer. But those laws are already in place and there is no reason to stifle what is good.
It would be a good idea if every law had to be introduced with a clear statement (like those you have to make if you do a merger filing with the competition authorities) about what the effect will be on employment. The retail distribution review seeks to create laws that will decimate the broking market and the proposed insurance laws if enacted will reduce the number of insurers in the country. Neither would pass the NDP test.
Let us hope Parliament sees the big picture and keeps for itself powers that it is constitutionally obliged to keep for itself so that it can stimulate and not restrict this important sector of the economy.
Draft bill proposes it should override other regulators, common law, and put itself beyond review of the courts
Patrick Bracher (@PBracher1) is a director at Norton Rose Fulbright.