Policyholders in Botswana could get protection from insurance sharks

24 Jun 2019

BY BONNIE MODIAKGOTLA

Insurance policyholders will get reprieve following commencement of regulations that protect holders from vague conditions and terms which have been a source of strained relations between insurers and clients.

The Non-Bank Financial Institutions Regulatory (NBFIRA) on Wednesday announced that the Botswana Insurance Industry Act (2015) came in effect on May 2019, replacing the outdated Insurance Industry Act (1987). At the core of the new changes is raft of measures to enhance the protection of policyholders, while also fostering greater transparency and accountability of industry players.

NBFIRA regulates the over P5 billion strong insurance industry which comprises of almost 300 insurance related companies, and 2,400 representatives. Botswana’s insurance industry has grown over the years, marked by entrance of new players, diverse insurance products, and rising profits. As the sector got bigger, so has been complexities, resulting in the need for new regulations.

The regulator says the new Act seeks to strengthen the corporate governance of insurance industry players by introducing more stringent accountability and transparency requirements including capital requirements, professional indemnity cover and security guarantee and premium payment requirements to insurer amongst others. NBFIRA added that the commencement of the new Act follows discussions with insurance industry participants – where they engaged on the applications and implications of the new rules to ensure compliance. Part of the requirements include submission of audited returns by agents, and the preservation of records over a longer period.

“The Authority regulates and supervises in line with international standards and best practice and the risk-based approach used is indeed international best practice. It is in this regard that the Authority deemed it essential to review the regulatory framework for the insurance industry to ensure its relevance to contemporary developments both in terms of opportunities and challenges in the industry both locally and internationally,” said Oaitse Ramasedi, the regulator’s chief executive officer.

There has been rising concerns among insurance policyholders, particularly retail clients, who have complained about the complex layers in the insurance industry, citing the information asymmetry that exists between agents and the insurers. Among the complaints, clients say agents driven by commission to close sales fail to disclose some information that becomes crucial during policy claims or surrender. This has caused confusion and frustrations for clients when the insurer fails to meet their obligations due to unmet conditions and terms - which the client was largely unaware.

Now, NBFIRA says that will be the thing of the past as  protection of policyholders is strengthened through the Act’s enhanced disclosure requirements at inception of the insurance policies and continuously throughout the duration of the insurance contract. Part of disclosures include revealing to the prospective policyholder the commission or remuneration the insurance agent will earn if the prospective policyholder enters into, varies or renews an insurance policy. The disclosures also extend to the freedom of choice for an individual to use their existing insurance policy or undertake a new policy in the event that it is required in order for them to access a loan.

“Safeguarding the confidentiality of policyholder information is underscored in the new Act, as is the fact that no insurance policy shall commence without the first premium being paid through any mode of payment satisfactory to the insurer before any policy benefits can be provided. The commencement of the Act has also operationalised the Authority’s Policyholder Protection Rules (PPR) which provide the rights of policyholders and obligations of insurance service providers,” the regulator said.