Demarcation regulations postponed | KPMG | ZA

Demarcation regulations postponed

Demarcation regulations postponed

The demarcation regulations between health insurance products and medical schemes have been postponed by National Treasury and the Department of Health to the second quarter of 2015.


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KPMG in South Africa


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The second draft of the demarcation regulations was released for public comment in April 2014, and with the aim of releasing the final regulations in October 2014. The postponement was due to the volume and extent of the public comments received - approximately 446 submissions.

The second draft provided for:

  • The types of health insurance policies that are permissible under the Short and Long-term Insurance Acts and consequently excluded from regulation under the Medical Schemes Act, despite such health insurance policies meeting the definition of the business of a medical scheme. The amendment of the definition of the business of a medical scheme (amended by Financial Services Laws General Amendment Act) will become effective with the final demarcation regulations.
  • Prohibiting health insurance policies from discriminating against any person on the grounds of age, gender and other criteria (i.e. insurers are prohibited from applying normal underwriting practices to these products).
  • Limiting the benefits payable to policyholders.
  • Limiting multiple or bundled policies being offered to policyholders by insurers and their related parties.
  • Limiting commission relating to health insurance products to a maximum compensation under the Medical Schemes Act.
  • Restricting marketing activities and material relating to these products, to ensure that the potential policyholder is not led to perceive health insurance products as the same as medical aids or achieving the same objective.
  • Enhancing regulatory reporting and monitoring (additional disclosure prior to launching a new health policy to the Financial Services Board and the Registrar of Medical Schemes). 

The effective date of implementation is intended to be within 90 days after the final regulations are published. The transitional provisions indicate that all new health insurance policies  written after the final regulations come into operation, must be aligned with the requirements set out in the final regulations. Existing health insurance policies will be expected to align to the final regulations requirements upon renewal of the health insurance contract.

Background to these regulations

The main objective of the demarcation regulations is to separate clearly health insurance products from medical schemes. This is necessary as health insurance products, underwritten by competitive and commercially driven insurers, are considered to be a threat to medical schemes. The regulations propose to protect the medical scheme industry and its members from health insurance products which, according to the regulators, are targeting healthy and young individuals and extracting these from the medical schemes pool.

Furthermore, health insurance products are not regarded as promoting the principles of social welfare and solidarity principles supporting the manner in which medical schemes operate. The proposed regulations aim to change existing practices applied by insurers to their health insurance products so that similar principles to that of medical schemes are applied to the health insurance environment.

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