Distribution Channels and Intermediation Arrangements

Distribution channels and intermediation arrangements

Topics covered
1. Intermediary agreements
2.Binder agreements
3.Binder fees
4. Reporting requirements

Types of agreements
Definition: agreement entered into between a microinsurer and an intermediary outlining the terms under which the intermediary will render services as intermediary in respect of the microinsurer’s policies. Intermediary agreements may be concluded with the following types of intermediaries:

• Representatives
• Independent intermediaries

Criteria for appointment
Criteria for appointment of representatives:
The representative must be duly appointed by the microinsurer and meet the FAIS Fit and Proper requirements, including product knowledge competency requirements Criteria for appointment of independent intermediaries:
The independent intermediary must be a licensed FSP and meet the FAIS product knowledge competency requirements in respect of the policies offered by the microinsurer

Parties to intermediary agreements
Parties to the intermediary agreement

• Microinsurer and intermediary concerned (representative/independent
  intermediary)
• Agreement may not be entered into by a third party acting on behalf of the
  microinsurer or the intermediary
  Obligations of the microinsurer
• The microinsurer must furnish the intermediary with a written copy of the
  intermediary agreement setting out the terms and conditions Termination of intermediary agreement
• Representatives: upon termination of appointment
• Independent intermediaries: upon withdrawal or suspension of FSP licence

Remuneration
Remuneration of intermediaries

• Uncapped commission on "risk” and “funeral” classes of
  business
• Commission caps only apply to “credit life” class of business
• Uncapped commission is also applicable to non-life
  microinsurance classes of business, except for motor class where aggregate value of benefits exceeds R120 000

Binder agreements
Definition: written agreement between a microinsurer and a person (binder holder) to do any one or more of the following functions on behalf of the microinsurer:

• Enter into, vary or renew a policy
• Determine the wording of a policy
• Determine premiums under a policy
• Determine the value of policy benefits
• Settle claims

Types of binder holders

1. Non-mandated intermediaries

• Act as agents of the microinsurers and policyholders
• May perform both binder functions and intermediary services
• Perform binder functions on behalf of the microinsurers and intermediary
  services on behalf of the policyholder
• Remunerated in the form of binder fees and commission, provided there is
  no duplication of charges
• May not share in profits with the microinsurer

Types of binder holders (cont.)
2. Underwriting managers (UMAs)

• Act as agents of the insurer
• May not sell policies directly to policyholders
• May render any other intermediary services (apart from selling), to
  policyholders
• Earn binder fees and commission, provided there is no duplication
  of charges
• May share in profits with the microinsurer

Binder fees
BINDER FUNCTION MAXIMUM FEE PAYABLE Enter int, vary or renew a policy￾Function (a) Function (a) only 3.5% Determine the wording of a policy

• Function (b)
  Function (a) and one or more of functions (b)- (d) 5% Determine premiums under a policy- Function (c) Determine the value of policy benefits under a policy- Function (d) One or more of functions (b)- (d) only 0% Settle claims under a policy 4%

Reporting requirements

• A microinsurer must notify the FSCA, at least 30 days before entering into
  a binder agreement.
• A microinsurer must, at least 60 days before the termination period,
  inform the FSCA in writing:
• Of the date on which the binder agreement will terminate;
• Of the reasons for the termination of the binder agreement;
• How the policies to which the binder agreement relates will be dealt
  with;
• How any legislative requirements relating to the termination of the
  binder agreement or policies, will be complied with.

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