In­sur­ance reg­u­la­tor looks to rule with heavy hand

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Pa­trick Bracher

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.

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