The bill is to introduce a framework for micro insurance among other things.
The finance committee could not deal with the bill this year because of its heavy workload and the long parliamentary recess for the municipal elections.
The bill forms part of the twin-peaks reforms to establish two pillars for the regulation of the financial sector, a market conduct regulator and prudential supervisors. Parliament has passed the Financial Sector Regulation Bill, which provides for this new system.
The bill has been in development for more than six years, and insurers have already begun dual reporting and developing the necessary processes and systems to meet its requirements.
"A delay in implementing the bill may result in increased implementation costs and a loss of momentum," the memorandum to the bill states.
The bill provides "a consolidated legal framework for the prudential supervision of the insurance sector that is consistent with international standards for insurance regulation and supervision," Treasury said recently.
"It also seeks to replace and consolidate substantial parts of the Long-term Insurance Act and the Short-term Insurance Act relating to prudential supervision," it said.
The bill seeks to promote the maintenance of a fair, safe and stable insurance market by establishing a legal framework for insurers by setting higher prudential standards, insurance group supervision and stronger reinsurance arrangements.
It will also expand access to insurance through a dedicated micro-insurance framework and is intended to strengthen the regulatory requirements of governance, risk management and internal controls for insurers. The bill gives effect to Treasury's microinsurance policy document released in July 2011. The bill will formalise informal micro insurers who will have to be registered.
"A well functioning micro-insurance market is essential to financial inclusion, as it allows low income households access to a variety of good value, formal financial products appropriate to their needs. Greater financial inclusion has positive effects on economic growth and the reduction of income inequalities," the bill's memorandum notes.
"Without the protection against unexpected loss provided by insurance, even those households and businesses that have established some financial security may find themselves dragged back into the cycle of poverty."
The memorandum says the bill is an attempt to balance the lowering of regulatory barriers to entry of micro insurers into the market while ensuring appropriate and sufficient consumer protection. It allows for a lower minimum regulatory capital requirement for microinsurers as well as a simpler dedicated prudential regulatory model suited to their risk profile under a separate licence, in order to benefit from the lighter prudential requirements.
"The bill will give effect to the outcomes of a number of policy projects undertaken over the past few years, in particular the solvency assessment and management framework," Treasury said. This risk-based prudential supervisory framework is to improve policyholder protection and contribute to financial stability through aligning insurers' regulatory capital requirements with the underlying risks of the insurer.
The law does not at present allow for adequate supervision of insurance groups. A significant number of SA's licensed insurers operate within group structures that brings benefits but also risks such as the direct or indirect exposure to the risks of other group entities, conflicts of interest, and inadequate risk assessment. The Bill introduces a new group-wide supervision regime for insurers. This allows the regulator to regulate and place requirements on the controlling companies to protect policyholders and beneficiaries from risks emanating from the insurance group.
Source: BDpro
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