No need to panic – here are the facts on ‘debit order collection fees’
If you’re a broker with a finger on the pulse of new or intended legislation, you might have had a mild heart attack when you read the provisions of Section 113(d) of the Financial Services Laws General Amendment Bill.
However, Etana’s head legal eagle Judy Byrne is on hand to clear any confusion by giving you the current facts and some healthy advice to boot.
Section 113(d) proposes to delete section 8(5) of the Short Term Insurance Act, effectively scrapping brokers’ entitlement to charge their clients a Section 8(5) fee.
Section 8(5) of the Act currently allows brokers to charge their policyholders fees for services that fall outside the insurance contract and outside the definition of ‘intermediary service’ provided that “…the amount thereof is disclosed expressly and separately to the policyholder by the intermediary”. Examples of Section 8(5) services are those involving general advice outside of product specific advice, loss control advice, risk financing consulting and facilitating of non-insurance value add products, to name a few.
It is important for brokers to remember that collecting and accounting for premiums falls within the definition of ‘intermediary service’ (and therefore outside the scope of section 8(5)) and so is remunerated by way of commission only. A debit order collection fee may not be charged to the policyholder for the brokers’ premium collection function as this would mean the broker would be compensated twice for performing the same function. (The industry was recently reminded of this prohibition in the FSB’s latest Information Letter 2/2012 issued on 19 July 2012).
The South African Insurance Association objects
The South African Insurance Association (SAIA) kicked up a stink over the proposed deletion of Section 8(5). As a result, both the National Treasury and FSB have acknowledged the concern and indicated that they will not enact Section 113(d) of the proposed Amendment Bill until such time as Regulations dealing with the definition of ‘intermediary service’ have been consulted on and finalised.
Until this issue is officially resolved, it’s important for brokers to adopt the following three guidelines when charging policyholders a Section 8(5) fee in addition to the premium:
- 1 Your client should never have to pay twice for the same service
- 2 The fee must be specifically agreed to in writing with your client
- 3 Your client must be able to stop the fee being charged at their discretion as outlined in Section 3A(1)(a)(iv) of the FAIS General Code of Conduct.
Here’s an issue that presents a real danger zone involving keeping your clients happy and loyal, and it’s not an issue that a broker can afford to treat lightly. A lost client is a lose-lose-lose result: for you, your client and the industry, so make sure your actions are focused on keeping smiles on the dials of our VIPs.