The Definition of a Consumer in Insurance Law in South Africa

1. The Definition of a Consumer in Insurance Law in South Africa By Prof B Kuschke

2. Legislation in the Insurance industry • Long-term Insurance Act • Short-term Insurance Act and • Financial Advisory and Intermediary Services Act (“FAIS”) • Policyholder Protection Rules (long-term and short-term)

3. New Consumer Protection Act 68 of 2008 (“CPA”)31 March 2011 • Schedule 2: exclusion of the Long- and Short-term Insurance Acts (not FAIS) from its application is conditional, that the insurance industry must align its consumer protection measures with the CPA. • Section 10 of the Act: this must happen within 18 months from date of commencement of this Act, after which the CPA will apply

4. Who is the consumer? ‘Consumers’ are all natural persons and juristic persons with asset value or annual turnover of less than R 2 million = Euro 200 000

5. “consumer”, in respect of any particular goods or services, means— (a) a person to whom those particular goods or services are marketed in the ordinary course of the supplier’s business; (b) a person who has entered into a transaction with a supplier in the ordinary course of the supplier’s business, unless the transaction is exempt from the application of this Act by section 5(2) or in terms of section 5(3); (c) if the context so requires or permits, a user of those particular goods or a recipient or beneficiary of those particular services, irrespective of whether that user, recipient or beneficiary was a party to a transaction concerning the supply of those particular goods or services; and (d) a franchisee in terms of a franchise agreement, to the extent applicable in terms of section 5(6)(b) to (e);

6. ‘‘consumer agreement’’ means an agreement between a supplier and a consumer other than a franchise agreement ‘‘juristic person’’ includes— (a) a body corporate; (b) a partnership or association; or (c) a trust as defined in the Trust Property Act, 1988 (Act No. 57 of 1988)

7. ‘‘service’’ includes, but is not limited to— (a) any work or undertaking performed by one person for the direct or indirect benefit of another; (b) the provision of any education, information, advice or consultation, except advice that is subject to regulation in terms of the Financial Advisory and Intermediary Services Act, 2002 (Act No. 37 of 2002); (c) any banking services, or related or similar financial services, or the undertaking, underwriting or assumption of any risk by one person on behalf of another, except to the extent that any such service— (i) constitutes advice or intermediary services that is subject to regulation in terms of the Financial Advisory and Intermediary Services Act, 2002 (Act No. 37 of 2002); or (ii) is regulated in terms of the Long-term Insurance Act, 1998 (Act No. 52 of 1998), or the Short-term Insurance Act, 1998 (Act No. 53 of 1998)

8. ‘‘supplier’’ means a person who markets any goods or services “service provider’’ means a person who promotes, supplies or offers to supply any service

9. Purpose of CPA The primary purposes of the Act include • the reduction and amelioration of disadvantages • the promotion of fair business practices • to promote the rights to fair and honest dealing and • to fair, just and reasonable terms and conditions.

10. Prohibited provisions • defeat the purpose and policy of the Act • mislead or deceive the consumer • create a waiver or a deprivation of consumer rights • limit or exclude supplier obligations and liability • constitute and assumption of risk by the consumer • are an acknowledgement of non- misrepresentation or non-warranty. • agreement to sign advance documentation • consent to a predetermined value of costing

11. Section 48(1)(c): ‘A supplier must not require a consumer to waive any rights or assume any obligation or waive any liability of the supplier on terms that are unfair, unreasonable or unjust or impose such terms as a condition of entering into a transaction’.

12. Section 48(2) defines ‘unfair, unreasonable or unjust’: “without limiting the generality thereof, as a clause that is excessively one-sided in favour of a person other than the consumer; where the terms are so adverse to the consumer as to be inequitable, or where the consumer agreed to the transaction subject to conditions that he should have been notified of and was not.

13. Section 40 prohibits a supplier to use unconscionable conduct, defined as any conduct having the character of • physical force • coercion • undue influence; pressure • duress or harassment • unfair tactics or • any advantage taken of a consumer substantially unable to protect his interests because of disability, illiteracy, ignorance, inability to understand language or other similar factor; or • conduct that is unethical or improper to a degree that it would shock the conscience of the reasonable person.

14. Where the Act does not provide a specific remedy, a court may make an order that a provision is void, or the transaction was unconscionable, unjust, unreasonable or unfair in whole or in part, and make any order deemed just and reasonable to restore money, to compensate consumer for losses and expenses relating to the transaction and court proceedings, and also require the supplier to cease his activities or practice.

15. In accordance with section 14 of the Consumer Protection Act, should it apply, a supplier must give the consumer notice in writing or in a recordable form, of the impending expiry date of their agreement and the possibility of renewal or extension. This notice must be given not less than 40 but not more than 80 days before date of termination. Where the consumer fails to instruct the supplier to terminate the agreement on its expiry date, or fails to inform him that he agrees to the renewal, the transaction is deemed to continue on month-to-month basis.

16. Consumer Protection Formalities of written documents • No general requirement • In practice, insurance contracts are usually reduced to writing • Long-term Insurance Act: [section 48] insurer must supply insured with summary of certain aspects of their contract within the time period prescribed by law. • Short-term Insurance Act: also contains similar regulations

17. New Policyholder Protection Rules became operational on 1 January 2011 • cover obligatory and standardized disclosures • consequences of failure to pay premiums and non-compliance • cancellation of policies • cooling-off periods • the mandatory contents of insurance agreements

18. Notification of dispute resolution processes Insurers must always within a reasonable period inform a policyholder in writing of details of any internal complaint resolution systems and procedures, as well as full particulars relating to the Short-term Insurance Ombud.

19. Language and access CPA: plain language - 11 official languages CPA: record of transaction must be kept in recordable format and free copy or free access given to consumer

20. Legislation provides that no contract will be invalid merely because a statutory provision regarding such a contract has not been complied with • Exception: PPR may contain rules regarding the prescribed contents and state that clauses contrary to such a rule affect the validity of the contract

21. Intermediaries • Financial Advisory and Intermediary Services Act 37 of 2002 • Creates a regulatory framework for intermediary and advisory services: • Registration and licensing of financial service providers • Duties of financial service providers • Provides for codes of conduct • A financial service provider (includes an insurer) accepts responsibility for the conduct of his representatives. • The Financial Services Board is responsible for supervision and compliance.

22. “financial services provider” denotes any person other than a representative who furnishes advice, or furnishes advice and renders any intermediary service or renders an intermediary service as a regular feature of his business confusion in the Act: refers to both ‘representative’ and ‘mandatory’ Intention of the legislator was not to change the common law rules pertaining to agency.

23. “intermediary service” includes any act other than the furnishing of advice that is performed by a person for or on behalf of a client or a financial product supplier, with the that result that a client enters into, or offers to enter into any transaction in respect of such a product. • “advice” is broadly defined as ‘any recommendation, guidance or proposal of a financial nature furnished by any means or medium, to any client or group of clients.’ It must relate to the purchase of any financial product or the investment in any financial product, and includes loan agreements and cessions.

24. Dispute resolution Dispute between a client and a financial service provider must first exhaust the internal complaint resolution system and procedures of the provider When it remains unresolved it must be adjudicated by the Office of the Financial Advisory and Intermediary Services Ombud and the Insurance Ombud

25. FAIS prescribes Rules on Proceedings on claim procedures, the process and methods of assessment and determination and appeals This statutory process satisfies section 34 of the Constitution on the right of access to a court, tribunal or other forum.

26. Time periods regulated from 1 January 2011 by Long-term and Short-term Policyholder Protection Rules: • An insurer must accept, reject or dispute a claim within a reasonable period after receiving the claim, and then notify the policyholder in writing of his decision within 10 days of taking the decision.

27. Where an insurer rejects a claim or disputes the quantum of the benefit claimed, he must inform the policyholder in the written notification of: (i) the reasons for his decision; (ii) that the policyholder has a period of not less than 90 days from date of receipt of such a notification to make representations to the insurer in respect of the latter’s decision; (iii) the right of the policyholder to lodge a complaint in terms of the Financial Services Ombud Schemes Act 37 of 2004 and the relevant provisions of the Act, in plain understandable language; (iv) any time limitation provision for instituting legal action and the implications thereof, in an easily understood manner;

28. Where the policy does not contain a time limitation, the prescription period that will apply in terms of the Prescription Act 68 of 1969 (currently 3 years) and the implications thereof in an easily understood manner

29. The insurer must then, within 45 days of receipt of such a representation under (i) above, notify the policyholder in writing of his decision to accept, reject or dispute the claim. This notification must contain reasons for the decision, the facts that informed the decision and (iii) to (v) in (b) above, where the claim is rejected or disputed. • Despite any agreement on a time limitation, a policyholder may request the court to condone non-compliance where good cause exists for the failure and where the clause is unfair to the policyholder.