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Motor Warranties
Sunday, August 1, 2010
Tales of old

Motor vehicle warranties: Circular RV.73, dated 26th October 1982: To all short—term insurers

1. It has come to the attention of this Office that various parties which are not registered as insurers in terms of the Insurance Act, 1943 are, by issuing so-called “motor vehicle warranties” against payment, indemnifying owners and hire- purchase buyers of motor vehicles against losses which the latter might suffer in connection with the motor vehicles. This type of warranty is sometimes coupled with the marketing of some or other oil product. On the strength of an investigation conducted by this Office, it was ascertained that the furnishing of such motor vehicle warranties constitutes the carrying on of insurance business as defined in section 1 of the Insurance Act, 1943. The parties concerned have consequently been informed that they should, as soon as possible, but in any event not later than 31st December 1982, arrange for risks of this nature, whether the warranties are coupled with the sale of oil products or not, to be placed with registered insurers.

2. The purpose of this circular is to acquaint insurers with the view taken by this Office and to lay down certain guidelines in respect of the underwriting of this particular type of risk:
(a) The business should be classified as “motor business”;
(b) in the policy document only the premium charged by the insurer as consideration for the risk assumed by him and the applicable stamp duty should be cited as amounts payable in respect of the policy;
(c) the provisions of section 20bis of the Act must be complied with in respect of premiums collected by an intermediary on behalf of an insurer;
(d) the commission payable to intermediaries may not exceed the maximum percentage prescribed by regulation 30;
(e) if an insurer does not at present have the know-how or the administrative facilities to underwrite this type of business, the services of existing suppliers of such warranties may be made use of, against remuneration, until such time as the required know-how has been gained and the necessary administrative facilities have been acquired. However, an insurer may not make use of such services for a period exceeding three years and must ensure that remuneration in respect thereof is related to the value of the services actually rendered to him; and
(f) the arrangement for using the services of a person as contemplated in subparagraph (e) above should be embodied in a written management agreement, without the insurer’s waiving his right to fix premiums, select risks and settle claims. A copy of the agreement should please be supplied to this Office for record purposes.

3. A copy of this circular is enclosed for your auditor. Kindly have the attached acknowledgement form signed by him also before returning it to this Office.

Signed..........The Registrar of Insurance: Financial Institutions Office, Private Bag X238  Pretoria 0001

Insurance Act, 1943: Motor vehicle warranties: circular RV.97, dated 20th may 1988 (to all short—term insurers)


1. Consequent upon the issue of circular RV.73 dated 26th October 1982, certain developments have taken place and paragraph two of that circular is therefore substituted of the following paragraph in respect of the underwriting of motor vehicle warranties —
(a) The business will be classified as “motor business”;
(b) a separate policy document, reflecting only the total premium charged by the insurer as consideration for the risk assumed by him and the applicable stamp duty, covering the motor warranty and no other benefit to the insured, shall be issued by the insurer;
(c) the provisions of section 20bis of the Act must be complied with in respect of premiums collected by an intermediary on behalf of an insurer;
(d) the commission payable to intermediaries may not exceed the maximum percentage prescribed by regulation 30(3);
(e) where business is underwritten through an underwriting manager the underwriting administration expense is to be limited to 20% of the premium inclusive of profit commission. This aspect must specifically be authenticated by an insurer’s auditor as well as that the commission paid to an intermediary by an underwriting manager did not exceed the maximum percentage prescribed by regulation 30(3). The insurer will, when submitting his annual statutory return F247, append the authentication referred to above to the return;
(f) an underwriting manager must in accordance with the provisions of paragraphs (a) to (d) of the definition of “underwriting manager” in regulation 30(1) not in any way be connected with an intermediary;
(g) the authorisation of a claim settlement authority must be in accordance with market practices common for this class of business;
(h) the insurance period of a policy or renewal thereof may not exceed a period of 24 months; and,
(i) no inspection fee or any reimbursement of similar kind of whatsoever nature may be paid to an insurance broker or underwriting manager.

2. This office shall view the non-compliance of the above by any short-term insurer as an undesirable practice.

3. Please send a copy of this circular to your auditor. Kindly have the attached acknowledgement form signed by him also before returning it to this Office.

Signed..........The Registrar of Insurance: Financial Institutions Office, Private Bag X238  Pretoria 0001

Copyright © Insurance Times and Investments® Vol:23.8 1st August, 2010
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