Premium Payments to General Insurance Companies Directive, 2011

GAZZETTE EXTRAORDINARY 91 The Malawi Gazette Supplement, dated 31st May, 2011, containing Regulations, Rules, etc. (No. 6A)

GOVERNMENT NOTICE NO. 12

INSURANCE ACT (ACT NO. 9 OF 2010)

INSURANCE (PREMIUM PAYMENTS TO GENERAL INSURANCE COMPANIES) DIRECTIVE, 2011

ARRANGEMENT OF PARAGRAPHS

PARAGRAPH

1. Citation
2. Application
3. Interpretation

PART I—PRELIMINARY

4. Objectives
5. Rationale

PART III—SPECIFIC REQUIREMENTS

6. The rights and obligations of insurance brokers and insurance agents
7. The rights and obligations of insurers
8. Reporting duties of insurers
9. Reporting duties of insurance intermediaries
10. Reporting duties of insurance intermediaries other than insurance brokers
11. Supervision arrangements
12. Restriction on acquisition of clients of insurance brokers by insurers

PART IV—ADMINISTRATIVE PENALTIES AND ADMINISTRATIVE SANCTIONS

13. Administrative penalties
14. Other sanctions

IN EXERCISE of the powers conferred by section 46 (3) of the Insurance Act, 2010, the Registrar has issued the following Directive—

PART I—PRELIMINARY

1. This Directive may be cited as the Insurance (Premium Payments to Short title General Insurance Companies) Directive, 2011.

2. This Directive shall apply to general insurance companies, insurance Application intermediaries including agents and brokers, and all financial and other institutions engaged in the selling of general insurance products.

3. In this Directive, unless the context otherwise requires— Interpretation “commission” means the fee paid by insurers to insurance intermediaries for the sale of policies; “insurer” means all licensed insurance companies authorized to conduct general insurance business;

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“insurance intermediary” means an individual or firm that provides advice on insurance and can arrange policies on behalf of an insurer; “micro insurance” means insurance characterized by low premium and low caps or low coverage limits, sold as part of a typical risk- pooling and marketing arrangements, and designed to service low-income people and businesses; “Registrar” means the Registrar of Financial Institutions appointed Act No. 26 of under the Financial Services Act, 2010; and 2010 “premium” means the payment, or one of the periodic payments, a policyholder agrees to make for an insurance policy;

PART II—OBJECTIVES AND RATIONALE

Objectives 4.—(1) The objectives of this Directive include— (a) to address the problem of overdue and outstanding premiums that has been prevalent in the insurance market for so long; (b) to promote transparency and accountability in the insurance industry; (c) to ensure that insurance premium is received by an insurer as and when insurance cover is provided to enable insurers build up appropriate technical reserves; (d) to promote self-discipline in the management of trust accounts and trust funds by insurance brokers; (e) to foster fair competition amongst insurers and insurance intermediaries; (f) to ensure that the insurance market is conducted in an orderly fashion between insurers, insurance intermediaries and policyholders; and (g) to standardize premium payment and collection in the insurance market.

Rationale 5. This Directive is issued on the basis that— (a) insurers need to maintain adequate solvency margin at all times to cushion and enable insurers absorb losses from adverse events arising in the course of business; (b) the timely collection of premiums is crucial for the building up of an insurer’s technical reserves which are necessary for the maintenance of sufficient margin of solvency by the insurer; (c) overdue or outstanding premiums are inadmissible in consider- ing an insurer’s solvency position since such premium cannot be relied upon with certainty to support an insurer’s funding needs including settlement of claims thereby jeopardizing the interest of policyholders; (d) the high prevalence of the problem relating to long overdue premium in the market has necessitated introduction of urgent drastic remedial measures to address for good this problem which has had detrimental effect on the performance of the insurance industry for so long; and

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(e) the Registrar regards the maintenance, at all times, of appropriate market conduct for the long-term benefit of policyholders as an essential matter and deems it necessary to regulate arrangements between insurance companies and insurance intermediaries, so that no single party uses a potentially dominant market position to the detriment of the other parties.

PART III—SPECIFIC REQUIREMENTS

6.—(1) (a) Insurance intermediaries have the right to charge insurers a The rights and commission for their services. obligations of (b) The quantum of the commission shall be as agreed between the insurance insurance intermediary and the insurer, or as prescribed by the Registrar. brokers and insurance (2)—(a) Intermediaries shall cause policyholders to make out all agents insurance premium cheque payments in favour of insurers; (b) Where a cheque payment has been made by a policyholder in favour of an insurance intermediary, that insurance intermediary shall return the premium cheque payment to the policyholder, and require the policyholder to make premium cheque payment in favour of the insurer; and (c) An insurance intermediary who receives and retains premium cheque payment directly from a policyholder commits an offence.

(3) An exception to subparagraph (1) shall be the receipt of cash from policyholders for the payment of premiums.

(4) Insurance intermediaries shall deposit all the cash received for the payment of premiums from policyholders into their trust accounts, and remit these premiums once a week, on the last working day of the week, to insurers.

(5) The remittance of premiums shall be for all cash received for the working week up to the day immediately preceding the last working day upon which premiums are due to the insurer.

(6) An insurance intermediary who fails to remit premiums to insurers on the last working day of the week commits an offence.

(7) In cases where premiums are collected by financial institutions as is the case with bancassurance and microinsurance products, payment of premiums on individual policies may be made to the financial institution, who shall remit these insurance premiums to the insurers once a week, on the last working day of the week.

(8) Subparagraph 2 shall apply to insurance premiums received by financial institutions for any policies other than individual policies.

7.—(1) An insurer may, upon negotiation with the policyholder or an The rights and insurance intermediary, determine whether an insurance premium is to be paid obligations of annually in advance or whether some other period for the payment of an insurers insurance premium shall apply, such as monthly, quarterly or semi-annually in advance.

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(2)—(a) The insurer may provide, to policyholders, a credit period for payment of a premium of up to thirty calendar days. (b) If an insurance premium on a general insurance product is outstanding for a period of more than thirty calendar days, the insurer shall lapse the insurance cover on that policy, and thereby not pay claims. (c) Where an insurer has lapsed insurance cover due to non- payment of premiums, the insurer shall issue a cancellation notice to the client or broker of the client. (d) An insurer who provides a credit period of more than thirty calendar days to policyholders commits an offence.

(3) An insurer may not reinstate a policy under circumstances where a policy has lapsed due to non-payment of the premium within the specified thirty calendar days’ period, and a claim has arisen prior to policy reinstatement.

(4)—(a) An insurer shall not provide insurance policy to a client whose policy was previously cancelled by another insurer due to non-payment of premium. (b) An insurer that provides insurance policy to a client whose policy was previously cancelled by another insurer due to non-payment of premium commits an offence.

(5)—(a) An insurer shall pay the insurance intermediaries’ commission within five working days of the receipt of cleared funds from policy- holders or insurance intermediaries. (b) An insurer who does not pay insurance intermediaries’ commission within a period of five working days commits an offence.

(6)—(a) An insurer shall remit reinsurance premiums to its reinsurance companies for its reinsurance arrangements within five working days of receipt of premium from an intermediary or a policyholder. (b) An insurer who fails to remit premiums to reinsurers on the last working day of the week commits an offence.

(7)—(a) Where policies have been cancelled by policyholders, refunds of premiums paid in advance shall be returned by the insurer to policy- holders within twenty-one calendar days of receipt of notice of cancellation. (b) Where such cancellation has occurred, insurers may claw back from insurance intermediaries any commission payments made pertaining to the unexpired portion of the cancelled insurance policy.

Reporting 8.—(1) An insurer shall, by the tenth working day of every month, report duties of the following to the Registrar, in respect of the previous month— insurers (a) policyholder cheque payments pertaining to premiums made in favour of the insurer; (b) commissions paid within five working days of receipt of cleared funds;

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(c) value and number of insurance cover cancelled for policies for which outstanding premiums exceeded thirty calendar days; and (d) that all cash and cheque payments for reinsurance premiums received from intermediaries and policyholders were remitted to reinsurers within five working days.

(2) The wording of the monthly report to the Registrar, which shall be sent both electronically and in hard copy, shall be— “The insurer advises the Registrar that for the calendar month of [insert month and year]— (a) insurance premiums were received from insurance intermediaries, and all policyholder cheques were made out in favour of the insurer; (b) during the month, commissions and fees were paid within five working days of receipt of cleared funds by insurers from policyholders for the payment of premiums, and in the case of premiums paid by cash to intermediaries, within five working days of receipt of cleared funds from the insurance intermediaries’ trust accounts. Where payment was made by direct bank transfer to the insurer from a policyholder who is a client of an insurance intermediary, commission was paid within five working days of receipt of the premium to the insurance intermediary of which the policyholder is a client; (c) insurance cover was cancelled for all policies for which outstanding premiums exceeded thirty calendar days; and (d) no claims were paid in respect of events which occurred after cancellation of insurance cover.”.

(3)—(a) The report shall be signed by the principal officer and finance manager of the insurer. (b) An insurer who fails to provide the report to the Registrar in accordance with this subparagraph commits an offence.

(4)—(a) An insurer shall advise the Registrar by the tenth working day of every month of the occurrence, during the previous month, of deviations from the requirements under this Directive. (b) Such deviations shall include whether insurance premiums were received net of commission, whether commissions were paid in excess of five working days of receipt of cleared funds from the broker or the policyholder, or whether insurance cover was provided in excess of thirty calendar days. (c) Where such deviations have occurred, the insurers shall also advise the Registrar of the steps the insurer has taken to rectify the matter. (d) An insurer who fails to advise the Registrar in accordance with this subparagraph commits an offence.

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(5) The insurer shall advise the Registrar in writing, by the tenth working day of every month, of the occurrence, during the previous month, in respect of any unresolved dispute having occurred in respect of the subject matter of this Directive between the insurer and an insurance intermediary, and the steps being taken to resolve the matter.

Reporting 9.—(1) By the tenth working day of every month, an insurance duties of intermediary shall report to the Registrar that— insurance (a) all cheque payments for insurance premiums received from intermediaries policyholders were made out in favour of insurers. In the case of clients paying by bank transfer, that those bank transfers were made directly to the bank accounts of the insurers providing insurance cover; (b) any cash received from policyholders in respect of the payment of premiums was paid into the trust account of the insurance intermediary and forwarded to the insurer within five working days of receipt of such cash; and (c) during the month, commissions and fees were received from all insurers with whom the insurance intermediary deals, within five working days of cleared funds.

(2) The wording of the monthly report to the Registrar, sent both electronically and in hard copy, shall be— “The insurance intermediary advises the Registrar that for the calendar month of [insert month and year]— (a) all cheque payments for insurance premiums received from policyholders were made out in favour of insurers; and (b) during the month, commissions and fees were received from insurers within five working days of cleared funds received by insurers.”.

(3) The report shall be signed by a senior officer and a principal officer of the insurance intermediary.

(4) An insurance intermediary who fails to provide the report to the Registrar in accordance with this paragraph commits an offence.

(5) The insurance intermediary shall advise the Registrar by the tenth working day of every month of the occurrence, during the previous month, of any deviations from the requirements under this Directive.

(6) Such deviations shall include whether commissions and fees were received in excess of five working days of receipt of cleared funds from an insurer.

(7) Where such deviations have occurred, the insurance intermediary shall also advise the Registrar of the steps the insurance intermediary has taken to rectify the matter.

(8) An insurance intermediary who fails to advise the Registrar in accordance with subparagraph (7) commits an offence.

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(9) An insurance intermediary shall advise the Registrar in writing, by the tenth working day of every month, of the occurrence, during the previous month, of any unresolved dispute having occurred in respect of the subject matter of this Directive between the insurance intermediary and an insurer, and the steps being taken to resolve the matter.

10.—(1) The activities of insurance agents shall be managed by the Reporting entity whom they represent, either insurers or insurance brokers. duties of insurance (2) Insurance agents shall not have separate reporting duties to the intermediaries Registrar. other than insurance (3) Unless exempted in writing by the Registrar, financial institutions brokers offering a range of insurance products on behalf of insurers shall have identical reporting requirements to those of insurance intermediaries as set out in paragraph 9.

11.—(1) The Registrar reserves the right to request details of Supervision arrangements between insurers and insurance intermediaries pursuant to arrangements the provisions of the Financial Services Act, 2010. Act No. 26 of 2010 (2) The Registrar may investigate any matters, in relation to this Directive including a targeted inspection of insurers and insurance intermediaries.

(3) The Registrar, in his discretion, may exempt an insurer or insurance intermediary from complying with this Directive where the insurer or the insurance intermediary demonstrates exceptional circumstances warranting the exemption.

12.—(1) Subject to subparagraph (3), an insurer shall not accept direct Restriction on business from a client of an insurance broker. acquisition of clients of (2) Every insurer shall obtain a declaration, in a form prescribed by the insurance Registrar, from a prospective client, as to the client’s existing insurance brokers by broker. insurers

(3) Where an insurer accepts premium from a client of an insurance broker, the insurer shall pay to the client’s existing insurance broker or any other broker of the client’s choice, the requisite commission on the premium received from the client of that insurance broker.

(4) An insurer who accepts direct business from a client of an insurance broker in contravention of this paragraph commits an offence.

(5) In this paragraph— “client” means a policyholder who has acquired insurance cover through an insurance broker within a period of five years from the date of the transaction in question; “direct business” means a contract for insurance cover that is procured directly from an insurer by a client without involving an intermediary.

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PART IV—ADMINISTRATIVE PENALTIES AND ADMINISTRATIVE SANCTIONS

Administrative 13.—(1) When the Registrar determines that an insurer or an insurance penalties intermediary has not met the requirements of this Directive, the Registrar shall Act No. 26 of impose administrative penalties in accordance with the provisions of the 2010 Financial Services Act, 2010, to correct the situation, including— (a) a fine of thirteen per cent (13%) of the premium remitted, where an insurance intermediary fails to direct policyholders to make out cheque payment to an insurer; (b) a fine of one per cent (1%) of the premium which was to be remitted for each day the payment of the premium is delayed, where the insurance intermediary fails to remit client funds to an insurer within five working days of having received the insurance premium in cash; (c) a fine of ten per cent (10%) of the commission which was to be remitted for each day the payment of the commission is delayed, where an insurer fails to pay broker commission within five working days of receipt of cleared funds; (d) a fine of twenty per cent (20%) of the premium of the affected insurance policy when an insurer fails to cancel insurance cover for which outstanding premiums exceeded thirty days; (e) a fine of fifty per cent (50%) of the payment of the claim where an insurer pays an insurance claim on events occurring after cancellation of insurance cover; (f) a fine of one hundred per cent (100%) of the premium paid by a migrating client where an insurer acquires a client of an insurance broker; and (g) where the insurer or insurance intermediary persistently fails to comply with this Directive— (i) suspension of an insurer or insurance intermediary from accepting new business; or (ii) suspension or cancellation of licence.

Other sanctions 14.—(1) In addition to the penalties specified in paragraph 13, the Registrar may impose any one or more of the following sanctions against an insurer or an insurance intermediary— (a) imposition of directions as stipulated under section 39 of the Act No. 26 of Financial Services Act, 2010. 2010 (b) prohibition from declaring or paying dividends; (c) prohibition from declaring or paying bonuses, salary incentives or other discretionary compensation to directors or managing officers; (d) suspension of the establishment of new branches or expansion into new insurance or financial activities; (e) suspension of certain classes of insurance business;

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(f) suspension of the acceptance of new risks and issuance of a press statement on the closure to new business; and (g) suspension of acquisition of fixed assets.

Made this 10th day of May, 2011.

DR. PERKS M. LIGOYA (FILE NO. M/F/2/10 Registrar

GOVERNMENT NOTICE NO. 13

PENSION ACT, 2011 (ACT NO. 6 OF 2011)

NOTICE OF COMMENCEMENT

IN EXERCISE of the powers conferred by section 1 of the Pension Act, 2011, I, KEN EDWARD KANDODO, Minister of Finance, hereby appoint the 1st day of June, 2011, as the date on which the provisions of the Act, other than section 13, shall come into operation.

Made this 13th day of May, 2011.

KEN E. KANDODO (FILE NO. TII614) Minister of Finance

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