Ref: Information Letter [-]/[-] (LT&ST) FINANCIAL SERVICES BOARD REPUBLIC OF SOUTH AFRICA LONG-TERM INSURANCE ACT, 1998 (ACT 52 OF 1998) SHORT-TERM INSURANCE ACT, 1998 (ACT 53 OF 1998) Addressee: Long-term and short-term insurers File: Edition Issue date Effective date Information Letter Status Withdrawal date 1 st [-]/[-][-] [-]/[-]/[-] [-]/[-](LT&ST) Draft - 2 nd - - - - - 3 rd - - - - - Subject: Compliance with sections 4(3) of the Long-term Insurance Act and Short-term 1. PURPOSE 1.1 This Information Letter provides guidance to long-term and short-term insurers ( insurers ) on the interpretation and application of section 4(3) 1 of the Long-term Insurance Act No. 52 of 1998 and the Short-term Insurance Act No. 53 of 1998 ( the Acts ), respectively, to ensure that the publishing or issuing of advertisements, brochures or similar communications relating to the business of insurers or to long-term insurance or short-term insurance policies are not misleading, contrary to the public interest or contain incorrect statements of fact. 1.2 The Information Letter reflects the manner in which the Registrar of Longterm and Short-term Insurance ( Registrar ) will apply section 4(3) of the 1 Sections 4(3) of the Acts will be repealed by the Financial Services Laws General Amendment Bill ( FSLGAB ) once enacted and effective. Sections 8 of the Acts will be amended by the FSLGAB to read as follows: (1) No person shall (a) subject to section 8 (1) (a) of the Short-term Insurance Act, 1998, without the approval of the Registrar apply to his, her or its business or undertaking a name or description which includes the word insure, assure or underwrite or any derivative thereof, unless he, she or it is a long-term insurer; or (b) perform any act which indicates that he, she or it carries on or is authorised to carry on long-term insurance business, unless he, she or it is a long-term insurer authorised to carry on that business; (c) publish any advertisement, brochure or similar communication which relates to the business of a longterm insurer, or to a long-term policy, and which is misleading or contrary to the public interest or contains an incorrect statement of fact; or (d) publish any advertisement, brochure or similar communication which relates to a long-term policy that does not prominently include the name of the long-term insurer underwriting the long-term policy. These amendments do not impact on the principles enunciated in this Information Letter. The references to the sections of the Acts will be amended once the FSLGAB has been enacted and is effective. Page 1
Acts for regulatory and supervisory purposes. 2. BACKGROUND 2.1 Guidance on the interpretation and application of section 4(3) of the Acts is necessary to facilitate the consistent and uniform interpretation and application of section 4(3) of the Acts and to ensure compliance therewith, thereby protecting consumers and the integrity of the insurance industry. 2.2 The guidance provided in this Information Letter is consistent with international standards 2, and builds on the Code of Advertising Practice issued by the Advertising Standards Authority of South Africa. 3. THE LEGISLATIVE FRAMEWORK: SECTION 4(3) 3.1 Section 4(3) of the Acts provides that 3.1.1 If any advertisement, brochure or similar communication which relates to business of an insurer or to a policy, and which is being, or is to be, published or issued by a person, is misleading or contrary to the public interest or contains an incorrect statement of fact, the Registrar may by notice direct that person not to publish or issue it, or to cease publishing or issuing it or to effect the changes to it which the Registrar seems fit; 3.1.2 an advertisement, brochure or similar communication which relates to a policy must include the name of the insurer underwriting the policy. 3.2 This means that insurers must at all times 3.2.1 ensure that any advertisement, brochure or similar communication which relates to itself, its business or to a policy, that it publishes or issues, is consistent with section 4(3); 3.2.2 ensure that any advertisement, brochure or similar communication which relates to itself, its business or to a policy, that other persons publish or issue, is consistent with section 4(3), irrespective of the capacity 3 in which that person does so; and 2 3 Insurance Core Principles (October 2011), specifically ICP 19.4 of the International Association of Insurance Supervisors (IAIS) that obliges the supervisor to require insurers and intermediaries to promote products and services in a manner that is clear, fair and not misleading. This includes any outsourcing under Directive 159.A.i. (LT & ST) or the rendering of services as intermediary as defined in Part 3A or the Regulations issued under section 72 of the Long-term Insurance Act and section 1 of the Short-term Insurance Act. Page 2
3.2.3 be able to demonstrate to the Registrar the measures that it has in place to ensure such compliance. 4. TERMINOLOGY USED IN INFORMATION LETTER For purposes of this Information Letter, any word or expression to which a meaning has been assigned in the Acts has the meaning so assigned to it, and advertisement, brochure or similar communication means any direct or indirect visual or oral communication transmitted by any medium, or any representation or reference written, inscribed, recorded, encoded upon or embedded within any medium, by any means of which a person seeks to create public interest in policies or in the business of an insurer, or to induce the public to purchase, increase, modify, reinstate, surrender, replace or retain a policy including (but not limited to) printed and published material, audiovisual material, and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio and television script, billboards or similar displays, or web sites and social media. 5. GENERAL PRINCIPLES WHICH APPLIES TO ALL ADVERTISEMENTS, BROCHURES OR SIMILAR COMMUNICATIONS Factually correct 5.1 Advertisements, brochures or similar communications must be accurate. If statistics, achievements or awards are referenced in advertisements, brochures or similar communications the source of the statistics must be disclosed and dated. Not misleading 5.2 Advertisements, brochures or similar communications must provide a balanced presentation of key information to potential policyholders. Descriptions should not exaggerate benefits and must clearly include key limitations, risks and costs. Limitations must be clearly defined and should not be worded positively to imply a benefit. 5.3 Advertisements, brochures or similar communications should use plain and understandable language. Terms must be defined if the average potential policyholder could misunderstand them. 5.4 Any advertisements, brochures or similar communications, when examined as a whole, must not be constructed in such a way as to lead a potential policyholder to any false conclusions they might reasonably rely upon. Any conclusion likely to be made should be based on the literal meaning of the words, impressions from nonverbal portions of the advertisement (e.g. pictures, charts, or diagrams), and from materials and descriptions omitted from the advertisement. Page 3
5.5 The physical presentation of advertisements, brochures or similar communications must not obscure information. Each piece of information should be prominent enough and proximate enough to other information so as not to mislead an average potential policyholder. 5.6 Advertisements, brochures or similar communications must not be designed to exacerbate or imply the need for urgency which could encourage potential policyholders to make decisions that are not in their interests. 5.7 Advertisements, brochures or similar communications that refer to a benefit value (including a bonus value) that is payable on the expiry of a period that is more than five years into the future must also express the value of the benefit in present value terms, utilising reasonable assumptions on inflation. 5.8 Advertisements, brochures or similar communications must indicate whether or not premiums for life insurance risk policies are guaranteed, and if guaranteed, for which term / period. Public interest 5.9 Advertisements, brochures or similar communications must not ridicule or criticise other insurers, policies or marketing methods. Identification of insurer 5.10 Advertisements, brochures or similar communications of a policy must clearly and prominently identify the relevant insurer. 5.11 Advertisements, brochures or similar communications should not use the group or parent company name of an insurer to create the impression that any entity other than the insurer is financially liable under a policy. Preventative and remedial measures 5.12 Before an insurer or intermediary promotes an insurance product, it must take reasonable measures to ensure that the information provided is not misleading, contrary to the public interest or contain incorrect statements of fact. Ideally, measures should provide for an independent review of advertising materials and other communications intended for potential policyholders other than by the person that prepared or designed them. 5.13 If, subsequently, an insurer becomes aware that the information provided is not accurate and clear or is misleading, it should withdraw the information and notify any person that it knows relied or is relying on the information as soon as reasonably practicable. Page 4
6. PRINCIPLES RELATING TO INVESTMENT POLICIES The following principles apply in respect of investment policies 4 paragraph 5: in addition to 6.1 No projected benefits (including but not limited to maturity, income, death, disability or (partial) surrender benefits) may be included in advertisements, brochures or similar communications if the policy benefits depend on future unknown investment performance. 6.2 When actual past investment performance is provided for or referred to in advertisements, brochures or similar communications - 6.2.1 All information must be accurate and must be provided in the correct context, and the insurer must be able to substantiate all claims made; 6.2.2 A statement must be included that past performance cannot be extrapolated into the future and is not always an indication of future performance. 6.3 If tax advantages are referenced in advertisements, brochures or similar communications, they must be explained, and any restrictions, penalties, and mitigating circumstances should be disclosed. Further, advertisements, brochures or similar communications that discuss or reference the tax aspects of life insurance or annuity products must 6.3.1 explain, or cite the authority for, such tax treatment; 6.3.2 contain a clear statement that the reference to tax treatment does not constitute tax, legal, or accounting advice; and 6.3.3 contain a clear statement that potential policyholders must secure their own legal or tax advice to confirm how the tax treatment may apply to them. 6.4 Any reference to guaranteed elements of features must indicate whether the guarantee is subject to any requirements and conditions and where disclosure of those requirements and conditions can be found. 6.5 Where an insurance policy is used as a wrapper for a collective investment scheme portfolio referred to in the Collective Investment Schemes Control Act No. 45 of 2002, or where an insurance policy provides for investment of policyholder s funds into collective investment schemes portfolios any advertisements, brochures or similar communications must comply with any 4 As defined in Part 5B or the Regulations issued under section 72 of the Long-term Insurance Act. Page 5
determination of advertising and marketing requirements for collective investment schemes made under the Collective Investment Schemes Control Act 45 of 2002. 7. APPLICATION OF PRINCIPLES WITH RESPECT TO SPECIFIC PRACTICES White labeling 5 7.1 No advertisements, brochures or similar communications must use the name of another person to mislead or deceive as to the true identity of the insurer or to create the impression that any person other than the insurer is financially liable under a policy. 7.2 Any advertisements, brochures or similar communications of a white labelled policy must clearly and prominently identify the relevant insurer. Specifically, the identity of the insurer must be at least as prominent (e.g. at least the same font size) as that of the person under whose brand the policy is offered. Comparative marketing 6 7.3 Where a survey informs comparative advertisements, brochures or similar communications, the survey - 7.3.1 must be undertaken by an independent person; 7.3.2 must be conducted at regular intervals; 7.3.3 must ensure that policies being compared have the same or similar characteristics; 7.3.4 must take account of comparable features across the policy offerings included in the sample, to ensure that not only the Rand value of premiums (price) is being compared, but also the benefits provided under the policies concerned; 7.3.5 in particular, must ensure that price comparisons are based on policies with equivalent insured events, cover levels, exclusions, excesses and other key features to those of the insurers policies used in the comparison; and 5 6 The rebranding of a specific policy of an insurer to make it appear as if the policy is a product of another person or means a policy that is offered under the brand of another person. The direct or indirect comparison of a policy or insurer with one or more policies of another insurer or other insurers. Page 6
7.3.6 may not focus on the price of a policy to the exclusion of the policy s suitability and delivery on customer expectations. 7.4 The survey source must be referenced in advertisements, brochures or similar communications and the survey and methodology applied must be easily accessible to the public in an easily understood format. Value judgments or subjective assessments by an insurer ( puffing ) 7 7.5 Advertisements, brochures or similar communications that includes value judgments or subjective assessments ( puffing ) must 7.5.1 make it clear that what is being expressed in the advertisement is an opinion; 7.5.2 make it apparent to the average potential policyholder that the insurer has indulged in excessive hyperbole and patent exaggeration upon which the potential policyholder must not reasonably rely. Endorsements 8 7.6 Testimonials and third party endorsements used in advertisements, brochures or similar communications must be genuine and represent the current opinion of the person making the endorsement. They must be based upon actual statements made for endorsement purposes and must be properly attributed to the subject(s) of the endorsement. 7.7 If the person making the endorsement has any financial interest or relationship to the producer, or will or has been compensated for the testimonial, it must be disclosed in the advertisements, brochures or similar communications. 7.8 Any endorsement in advertisements, brochures or similar communications must clearly state that the endorsement of the product does not constitute financial advice. Cash-back bonuses 7.9 Advertisements, brochures or similar communications that reference cashback bonuses must not create the impression that the bonus is free and must adequately disclose the impact that the cash-back bonus feature has 7 8 An assessment of quality based solely on the opinion of the evaluator and where there is no preestablished measure or standard. A public statement declaring the virtues of a product and recommending the use of a product. Page 7
on the premium, unless the impact is negligible 9. 8. REPORTING 8.1 Insurers whose advertisements, brochures or similar communications are not aligned to the principles referred to in this Information Letter are urged to take immediate and necessary remedial actions. 8.2 Insurers who are not able to take immediate and necessary remedial actions must, 8.2.1 within 30 days from the effective date of this Information Letter, inform the Registrar accordingly in writing; and 8.2.2 within 30 days from the date of informing the Registrar, submit an action plan to the Registrar, which action plan must set out how and by when the alignment will be completed. 8.3 The notification and action plan referred to in paragraph 8.2 must be submitted electronically to the Registrar, c/o [-] at [-]@fsb.co.za. 9. AVAILABILITY AND INFORMATION SHARING This Information Letter is available on the website (www.fsb.co.za) of the Financial Services Board. REGISTRAR OF LONG-TERM AND SHORT-TERM INSURANCE 9 Defined as where the cost of providing for the cash-back bonus comprises less than 10% of the total premiums. Page 8