Regulatory update - Rider benefits

Patrick Bracher
Enjoy another regulatory update brought to you by Patrick Bracher from Norton Rose Fulbright, our Corporate Partner.

The Insurance Act includes useful provisions permitting ancillary benefits in a non-life policy known as rider benefits. A rider benefit is an additional insurance obligation under a life insurance policy or a non-life insurance policy which is ancillary to the primary insurance obligations assumed under the policy.

An insurer that is licensed to conduct a specific class or sub-class of insurance business may provide the rider benefits prescribed for that class or sub-class of insurance business (s 25(3)). It is accounted for under the primary class.

Where the word “prescribed” is used in the Insurance Act it refers to what is prescribed in a Prudential Standard. The relevant Prudential Standard is GOI 7 which sets out miscellaneous regulatory requirements for insurers. Section 8.3 deals with non-life rider benefits.

A non-life insurer may add to the policy benefits which it is licensed to provide, rider benefits relating to any of the classes or sub-classes of non-life insurance business for which it is not licensed as long as the benefits are ancillary to the primary insurance obligations assumed under the policy.

There are three possible ways in which to provide rider benefits:

  1. The benefit may accelerate the date on which the primary insurance obligation is assumed under the policy if a health, disability, or death event resulting from an accident occurs (only accidental death and disability events may be covered by a non-life insurer). For instance, a benefit subject to a waiting period may become payable immediately if the policyholder dies, is disabled, or suffers a serious health event.
  2. If the insurance obligations under the rider benefit or all rider benefits in the policy do not exceed 20% of the total primary insurance obligation assumed under the policy, so that it is truly ancillary. This is a more general benefit requirement.
  3. Where there is a premium waiver to any extent if a disability or death event resulting from an accident occurs. This will usually take the form of a premium holiday for the period of a disability or, on death, for the remainder of the insurance period.

The provision made for rider benefits is constructive and fair because it allows insurers to sweeten the offering to policyholders in ways which are not uncommon in the world of insurance.

Patrick Bracher
Norton Rose Fulbright South Africa
February 2024