Introduction
Individuals and organisations take out insurance policies to mitigate against risks. These risks range from loss due to accident, fire, theft, and many others. So generally many people are familiar with how insurance works.
In this article I look at the Statutory Instrument 81 of 2023 known as Insurance (Amendment) Regulations, 2023 (No.26) which was gazetted in May 2023. This Statutory Instrument (“SI”) was gazetted in May 2023 in terms of section 89 of the Insurance Act (Chapter 24:07). The effect of the SI is to amend the Insurance Regulations, 1989, published in SI 49 of 1989, by inserting a new section 5AA after section 5A.
Advance payment for insurance cover
According to section 5AA(1) the receipt of an insurance premium shall be a condition for a valid contract of insurance and there shall be no cover in respect of an insurance risk unless the premium is paid in advance.
The implications of this new section are very clear. If an insurance premium is not paid in advance the holder of an insurance policy has no cover. Insurance planning is therefore critical. The insured has to have the funds to pay for the cover upfront. I can foresee this SI being used widely when policy holders in default of payment attempt or seek to make a claim in the event of a misfortune or loss.
Crop insurance
In terms of section 5AA(2) the above condition or requirement does not apply to the insurance of crops in terms of the Farmers Stop Order Act (Chapter 18:11).
Insurance policy on credit
According to section 5AA(3) every insurer (insurance company) which issues an insurance on credit must record on the policy document that the policy is on credit. My interpretation is that in the event of an insurance policy on credit such policy has to be clearly shown in the policy document as distinct from the one which requires advance payment. My view is that if there is no indication then such policy falls under those that should be paid for upfront per section 5AA(1).
In terms of section 5AA(4) every policy owner (holder of an insurance policy) issued on credit must be entitled to the full value of the claim less premium due for the insurance policy on credit. My interpretation is that it is possible to make a claim and be paid to the extent that the insurance policy is clearly marked as an insurance policy on credit. The insurer is entitled to deduct the outstanding premium upon settling the claim by the insurance policy holder.
It is therefore significant for one to know and be sure whether his, her or its insurance policy requires advance payment under section 5AA(1), is an insurance policy on credit according to section 5AA(3) or is for crops under section 5AA(2). In the event of an insurance policy on credit it has to be recorded so on the policy document. If the policy requires advance payment then there is no cover unless the premium is paid.
According to section 5AA(5) where a policy has been insured on credit in terms of these regulations, section 5B(b) of the principal regulations shall apply in relation to matters relating to settlement of insurance claims.
Penalties against insurers
Section 5AA(6) provides for penalties against insurers in the event of violation of the regulations. The Commission (Insurance and Pensions Commission or IPEC) shall suspend the licence of an insurer who contravenes section 5AA(1). For the lifting of such suspension of licence the insurer shall pay a penalty which is three times the licence fee. In the event of a repeat of the offence the insurer is liable to a fine or six month prison terms or both fine and six month prison term.
Conclusion
One needs to understand if his, her or its insurance requires advance payment or is a policy on credit. A policy on credit has to be recorded as such on the policy document. If a policy is not on credit and is not paid in advance then the policy holder is not covered.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
