Insurers warned to ensure baseline compliance with CPA – or face penalties

- 22 February 2010

At its simplest level the new Consumer Protection Act does not impact on the provision of insurance services, however this is based on an assumption that the Long-term Insurance and the Short-term Insurance Acts are in line with the CPA.

In reality, the CPA sets a baseline and insurers would do well to ensure that their practices, and the content and wordings of policy documents conform to the CPA, certainly insofar as personal lines are concerned – or potentially face penalties.

This is according to Max Ebrahim, senior associate at Webber Wentzel’s Cape Town office.

Ebrahim suggests insurers closely examine the provisions of their documents and practices and weigh them up in terms of the relevant provisions of the CPA, and that they do it sooner rather than later.

“Not only is this highly technical but the comparison may often be a matter of interpretation; ambiguities need to be addressed and resolved ahead of the Act coming into operation. The early effective date – when all the administrative provisions of the Act come into force – is 24 April this year, with the general effective date being 24 October 2010.”

Ebrahim says insurers should also look closely at the implications of the CPA’s dramatic new product liability provisions which create a regime of strict liability, or liability without negligence.

This liability is imposed irrespective of whether or not the supplier is negligent, and is joint and several. The harm for which the supplier will be held liable includes death, injury, illness, loss of or physical damage to property and any economic loss arising from any harm caused by any unsafe goods, or any failure, defect or hazard in any goods, or inadequate warnings or instructions relating to any hazard associated with any goods.

The same liability is also imposed on any person who installs or provides access to such goods. “Needless to say, the increased potential product liability exposure for suppliers could impact heavily on insurers. This will therefore require careful underwriting of this risk,” warns Ebrahim.

There is also uncertainty about the relationship between the CPA and the Financial Advisory and Intermediary Services Act (FAIS). Ebrahim says while the CPA does formally exclude advice regulated under FAIS, the CPA will nonetheless trump FAIS if it offers greater protection as far as, say, services such as marketing and advertising is concerned.

Assuming that the Long and Short Term Insurances Acts are not amended, failure to comply with the provisions of the CPA could open insurers up to heavy administrative penalties of up to 10% of the company’s turnover of the previous year.