FSCA to exempt non-life brokers from clawbacks when a policy is voided because of non-disclosure

The FSCA has proposed amending the Short-term Insurance Act regulations to exempt independent intermediaries from commission clawbacks when a policy is voided because of material misrepresentation or non-disclosure by the policyholder.

Regulation 5.4 obliges an independent intermediary to refund commission to the insurer if the insurer refunds premiums to a policyholder.

In a communication published on 18 March, the FSCA said independent intermediaries have made “numerous enquiries” to short-term insurers about the fairness of recovering commission where the premium is refunded because the insurer voided the policy as a result of material misrepresentation or non-disclosure by the policyholder.

The FSCA said it agrees that the clawback of commission in these circumstances is unfair to independent intermediaries.

“It holds the view that where an independent intermediary rendered services as intermediary and the policy is then voided as a result of the policyholder acting improperly at his or her own accord, the independent intermediary should not be prejudiced and should retain the remuneration earned.”

The Authority said it, therefore, intends to exempt independent intermediaries from regulation 5.4 where an insurer voids a policy because of material misrepresentation or non-disclosure by the policyholder.

The exemption is, however, subject to the following conditions:

• The policy must have been entered into 12 months or more before the date on which the policy was voided;

• The independent intermediary must be able to demonstrate that he or she engaged regularly, but no less than once every six months, with the policyholder during the term of the policy; and

• The independent intermediary must demonstrate to the satisfaction of the insurer that he or she was not aware of or could not reasonably have been expected to be aware of the material misrepresentation or non-disclosure by the policyholder that resulted in the policy being voided.