Policy holder protection rules
The replacement PPR was published on 15 December 2017 and became effective 1 January 2018. The rules give effect to a number of business reforms and although mainly applicable to Insurers and their business practices, the provisions impact on FSP’s either directly or indirectly. Below is a very short summary of what you need to know. We have not included all the rules and by no means are they complete.
Rule 1: Fair treatment of policyholders
It is expected that an Insurer acts with due skill, care and diligence when dealing with a policy holder applying all the TCF principles
Rule 2: Products design
The Insurer must undertake a thorough assessment of their target market, intended distribution method and required disclosures necessary before a product is developed. Before a product is taken to market, offered or entered into a policy in respect of the new product, a managing executive must in writing approve the product and confirm that the product, distribution methods and disclosures meet all the requirements of this rule.
Rule 6: Determining premiums
Insurers now have to ensure that premiums payable reasonably balance the interest of the Insurer and the reasonable benefit expectation of a policyholder, are and based on assumptions that are realistic and that the Insurer believes are likely to be met over the term of the policy.
Rue 8: Waiver of rights
No Insurer or Intermediary may request or induce a policyholder or potential policyholder to waive any right or benefit conferred on that person by these rules.
Rule 9: Signing of blank or uncompleted forms
No Insurer or Intermediary may permit a policyholder or potential policyholder to sign any blank form or partially completed form necessary for the purpose of the transaction.
Rule 10: Advertising
Insurers are required to have a comprehensive advertising framework documented, consisting of policies, procedures and registers complying with all the provisions of this rule, which includes amongst others comparative advertising, puffery, endorsements and loyalty benefits.
Rule 11: Disclosures
Insurers must, whether outsourced through a binder agreement or mandated to an independent Intermediary, make the prescribed disclosures to policyholders before entering into a transaction, after inception of the policy and ongoing. All such disclosures and information must be in plain language, not misleading, clear readable print and comply with all the provisions of this rule.
Rule 12: Arrangements with Intermediaries and other persons
This rule addresses the specific provisions regarding Intermediary agreements, rules in terms of request for policy information from Intermediaries to Insurers and the rules for the facilitation of fee payments to Intermediaries and/or other persons. Of specific interest here is that an Insurer may not facilitate the payment of a fee from a policyholder due to the Intermediary if it has not satisfied itself that such fee has explicitly been agreed to by the policyholder in writing and that the fee relates to an actual service provided by the Intermediary, and that it does not relate to an Intermediary service and therefore results in an Intermediary being paid twice.
Rule 14: Ongoing review of product performance
Insurers have to review products on an ongoing basis to ensure that the product, distribution and disclosures remain consistent with the needs of the targeted policyholders and that the distribution method remains appropriate. Where a shortcoming is identified, appropriate remedial action must be taken.
Rule 15: Premium reviews
An Insurer may only review premiums on a specified review date. A premium increase may not result in the Insurer increasing its profit margin on a product beyond those assumed at the outset, allow the Insurer to recoup its losses on a policy incurred prior to review date, unfairly target a specific group of policyholders, seek to cover losses or increased business expenses not related to the profitability of the product, allow for the adjustment of a low initial premium consciously based on overly optimistic assumptions about investment performance etc.
Rule 17: Claims Management
An Insurer must implement a comprehensive complaints management framework with policies, procedures that include escalation and review mechanisms, registers, the allocation of responsibilities to a competent person and reporting to the appropriate forums.
Rule 19: Replacement of policies
Where an Intermediary replaces a risk policy, the Insurer must obtain a copy of the replacement Record of Advice and a managing executive or appropriate senior manager must confirm in writing that the replacement advice record complies with section 8(1)(d) of the GOC and that the ROA contains sufficient information to ensure that the Intermediary took reasonable steps to satisfy himself that the replacement product is more suitable to the needs of the policyholder.
Please note that this is a very short summary and if you want to peruse the full rules, they can be found on the FSB website.