A Brief Review of the Insurance Industry In South Africa
The Insurance Industry in South Africa has seen many changes during the past 100 years, including the rise of three major Insurance Acts as well as the Financial Services Board established in 1990.
The Insurance Act of 1923, also titled “Freedom with Publicity” was the first Act passed by the Union Parliament and was based on the principles of the United Kingdom Assurance Company Act of 1909. It provided policies with regards to insolvency as well as marriage. Even though there were no regulations to govern how the funds were invested, everything had to be fully disclosed to the public, hence Freedom with Publicity. The market was then used to determined value and stability of each client, or insurer. Many people questioned the adequacy of public control, especially how financial institutions were supervised, and feared that too much control would have the opposite effect and thus defeat the purpose.
With the rise of The “Control Legislation” Act passed in 1943, The South African Market Foundation questioned its importance. This Foundation arrogated that by forcing Insurers to deposit and invest in securities issued by specified public bodies, the state had total control over financial institution by means of the prescribed asset requirements, also known as the Du plum Rule. Even though debtors were protected by this rule, many investors and insurers lost their investment when the interest rose and their debt subsequently lost its value. Pensioners and widows where severely affected and many investors lost capital. In 1943 the Financial Institutions’ Office also came into power, and the Minister of Finance became its Registrar of Insurance.
The FSB, or Financial Services Board, was established in 1990 and served as a Statutory Regulatory Board with the purpose of supervising all the institutions governed by the Financial Institutions’ Office. Today, the FSB is the main controller of the Financial Services Industry and its purpose is to supervise laws and regulations related to insurance companies and pension funds by means of the Registration and Policy Revision, and the Prudential Supervision Division. The insurance Act of 1998 protected the policy holders to greater extent by abolishing the Du plum Rule introduced in 1977. The Du plum Rule declared that when interest is equal to unpaid capital, no further interest should be charged.
We can see from this brief review that the South African Insurance Industry is constantly changing. Insurance companies are evolving in complexity to keep up with the current markers, and go beyond what is expected. External factors also contribute to these changes, and these include crime and safety ratings, as well as the ever changing weather conditions. Risk management truly plays a vital role in all of this. If these factors are not managed to the full extent required, a client’s claims process could be negatively affected by poor risk management.
South African clients can rest assured that our insurance companies constantly strive to meet these demands, and enhance the service required. The Industry has proved that it can withstand a financial recession and difficult market related conditions.
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