05 Mar What You Should Know About the Short-Term Insurance Act

Understanding the Short-Term Insurance Act might seem daunting. That’s why we put together a summary discussing your rights as a consumer under the act, the responsibilities of short-term insurance providers, and a guide to how insurance companies calculate your premium. You’ll soon see that the act isn’t as intimidating as it looks. With the help of this post, and perhaps a legal professional, you’ll understand the Act in no time. Click here for a copy so you can follow along. 

Your and the Insurers’ Rights and Responsibilities.

These are the rights and regulations you as a consumer and insurer have under the act. 

Policy Information.

You have the right to receive clear information so that you can understand information about companies’ insurance policies. The terms and conditions of the policy should be communicated transparently.

Disclosure Requirements.

Consumers have to disclose all relevant information to the insurer when applying for insurance. Similarly, insurers must provide clear guidelines on what information is required from the consumer.

Fair Treatment.

Consumers are entitled to fair treatment by insurers. Unfair discrimination or unfair practices in the treatment of policyholders are not allowed.

Claims Process.

You have the right to a fair and reasonable claims settlement process. Your insurer is required to process claims promptly and fairly, and you should receive clear communication regarding the status of your claim.

Cancellation and Renewal.

Consumers have the right to cancel an insurance policy but must follow any applicable cancellation terms. Similarly, insurers are required to provide clear information about the renewal process and any changes to the policy terms.

Complaints Procedure.

Consumers have the right to complain to their insurers, and insurers are required to have an effective and fair internal complaints handling process. If the complaint is not resolved internally, you can escalate the matter to the insurance regulator.

Access to Information.

Consumers have the right to access their policy documents and other relevant information. Accordingly, insurers are required to provide consumers with access to their policy details, terms, and conditions.

Premium Increases.

Insurers must provide clear information regarding premium increases, and you have the right to be informed about any changes to the premium structure.

Confidentiality and Privacy.

Consumers’ personal and sensitive information must be treated confidentially, and insurers must comply with data protection and privacy laws.

How Insurance Calculates Your Premiums.

This is a simplified guide to how insurance calculates your premiums based on the value of your assets and liabilities.

Description of Assets

First off, let’s discuss the types of assets involved in calculations.

Monetary Assets

These assets carry monetary value.

• Bank notes, coins, and Krugerrand coins issued under the South African Reserve Bank Act.
• Credit balances, deposits, and bills with registered institutions under the Banks Act or Mutual Banks Act.
• Public deposits with the Corporation for Public Deposits.
• Securities and loans to the Government of the Republic.
• Securities and loans guaranteed by a Minister of the Republic.
• Securities and loans related to the repealed Provincial Government Act.
• Securities and loans with the Local Authorities Loans Fund Board.
• Securities and loans with the Rand Water Board.
• Securities and loans with Eskom.
• Securities, loans, and deposits with the Land and Agricultural Bank of South Africa.
• Securities and loans under the Legal Succession to the South African Transport Services Act.
• Securities and loans, not elsewhere specified, approved by the Registrar.
• Securities issued by the government, local authority, or body corporate of a territory that once was not part of the Republic, subject to Registrar approval.

Even though you’re unlikely to carry these assets, it’s still important to discuss them.

Assets You’re Likely to Have

This is a list of other assets that you probably carry.

• Immovable property in the Republic.
• Motor vehicles, furniture, and office equipment used by the insurer in its business.
• Shares, debentures, and depository receipts issued by companies inside or outside the Republic, subject to specific conditions.
• Units in a registered unit trust scheme.
• Derivatives and margin deposits in the Republic.
• Claims secured by mortgages over immovable property.
• Other claims against long-term insurers, persons in the Republic, or approved foreign entities.
• Premiums due and payable to the short-term insurer for business carried on in the Republic.

This is to maintain a sensible way of calculating premiums.

How Companies Calculate the Value of Your Assets

When you take out short-term insurance, like car insurance, the company needs to know the value of the things you’re insuring (like your car) in case something happens. Here’s a simplified breakdown of how they figure it out:

They ignore certain things: Things like unpaid bills, office expenses, and stuff they can’t easily sell (like “goodwill”) aren’t counted.

Specific things have specific rules

These are some of the rules companies follow when working out your premiums.

• Gold coins: They use the price set by the South African Reserve Bank.
• Money in your bank account or investments: They use the actual amount.
• Stocks, unit trusts, and similar things: They use the closing price on the market.
• Other contracts and agreements: They use specific rules depending on the type of contract.
• Everything else: They estimate the fair market value, which is basically what someone would be willing to pay for it if they were buying it.

The final say: If the insurance company doesn’t think the value is right, they can ask for a different way to calculate it.

How Insurers Calculate the Value of Your Liabilities

The Short-Term Insurance Act has rules to make sure there’s enough money:

• Minimum Amount: The company must keep at least 7% (or more if required) of the premiums they collected in the past year. They can take out money they paid to other insurance companies to cover some of your costs.
• Unearned Premiums: This is like getting a refund on your unused gym membership. The company sets aside money for the portion of your policy you haven’t used yet, in case you cancel.
• Contingency Reserve: This is like a savings account for unexpected situations. The company keeps at least 10% of their premiums, but they can ask to keep less if they’ve had a lot of claims due to something unusual like a big storm.
• Other Liabilities: These are other things the company owes, like rent or employee salaries. They use standard accounting practices to figure out how much money to set aside for these.

These calculations help ensure the insurance company has enough money to pay you back if you need it, even if they have unexpected costs. This helps protect you and makes sure the whole system is fair and reliable.

Also, short-term insurance boosts your credit, so be sure to talk to your financial advisor about possible options.

We’ve discussed you and your insurer’s rights and responsibilities under the act, as well as the things companies consider when calculating premiums and liabilities. If you have any questions, contact Credit Boost. We’re happy to answer any short-term insurance questions you have.