CR377 Interpretation and application of the restriction period
Interpretation and application of the restriction period due to a breach of the 20% rule in terms of section 54 of the Long-Term Insurance Act, 52 of 1998
Insurer applying restriction period at the end of the premium paying period (policy year)
1. The policy was an investment policy that commenced on 1 June 2007.
2. The Complainant needed to withdraw the funds from the investment as she needed the cash for oncology treatment.
3. The insurer declined her request for the reason that the policy was in an extended restriction period which only ended on 1 May 2017.
4. The Complainant had increased the monthly premium in July 2010 and June 2011.
5. Both increases had breached the 20% rule in terms of Section 54 of the Long-Term Insurance Act.
6. The insurer’s interpretation was as follows:
• The premium paying calendar (premium period) year starts on 01 June and ends on 31 May of the next year. The extension of a restriction period takes into account the total premiums received in the calendar year/premium period to determine if a client has breached the 20% rule as per The Long-term Insurance Act. The change could therefore be affected anytime during the colander year and only if, by the end of the calendar year (31 May,) the increased premium breaches the 20% rule will the restriction period be extended from that date onwards.”
7. The insurer therefore applied the extended restriction period from the end of the premium paying period as it held that it was only at the end of the premium period that it could be determined if an excess premium had been received. The restriction period was extended for a further 5 years until May 2017 as the excess premium, following the increase in June 2011, was only calculated at the end of May 2012.
8. The Long-term Insurance Act states:
“”restriction period” means a period of 5 years which commences…
a) on the date with the first premium period begins; or
b) during a premium period after the first such period, on the first day of the month in which an excess premium is received by the insurer.” (own emphasis)
9. “Excess premium” is defined by the Act as follows:
“…means a premium which is received by, or becomes due to, a long-term insurer during a premium period and which-
a) by itself exceeds;
b) when aggregated with all premiums already received, and still be to received, during the premium period, exceeds; or
By a rate of more than 20 per cent, the higher of the total value of the premiums received by the long-term insurer during any one of the two premium periods immediately preceding that premium period…” (own emphasis)
10. Having regard to the bold type above, we wrote to the insurer and advised that we were of the view that the extended restriction period must be calculated from June 2011 for a further 5 years, thus ending June 2016.
11. The insurer accepted our view. The restriction period was amended to expire on 1 June 2016.