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Car Insurance Law

car_insurance_lawsWe would like to provide our vehicle owners and car insurance policyholders with a brief overview of the most important laws in the regulatory framework governing car insurance in South Africa. These laws include:

  • Short-Term Insurance Act (Act 53 of 1998 as amended)
  • Policy Holder Protection Rules (Short-term Insurance), 2004
  • Financial Advisory Intermediary Service Act (Act 37 of 2002)
  • Financial Services Ombud Schemes (Act 37 of 2004)


The insurance sector in South Africa is governed mostly by statutory law through various acts promulgated by parliament. The industry is also specifically regulated by the Financial Services Board in terms of the legislation and regulations promulgated by parliament.

How does this affect the vehicle owner and which are the most important aspects in Car Insurance Law that the consumer needs to know?

We would like to provide a brief overview of the Car Insurance laws and how they impact on the rights of our car owners, consumers, financial service providers etc

Short Term Insurance Act 53 of 1998

The Short-term Insurance Act (amongst other things):

  • Provides for the registration of short-term insurers.
  • Control the activities and administration of short-term insurers and intermediaries.
  • Prescribes financial requirements, solvency and liquidity.
  • Regulates policies and business practices and offers policy holder protection.
  • Regulates commissions, premium collection and claims handling.

Financial Advisory and Intermediary Services Act 37 of 2002

The objective of the FAIS Act is to regulate the rendering of certain financial advisory and intermediary services to clients. In essence, the FAIS Act deals with:

  • Regulating brokers as intermediaries and advisors, and Includes various other professions
  • The role of the Ombud is explained and formulated.

There is also the following subordinate legislation to FAIS:

  • General Code of conduct for authorised financial services providers (FSP’s).
  • Determination of Fit and Proper Requirements.

It is illegal for anyone who has not applied to the Financial Services Board to be licensed as a financial service provider, to give a consumer financial advice or sell a financial product. This law protects the consumer from inappropriate financial advice, and consumers can take action if they are given bad advice.

In terms of this law, anyone or any institution selling a financial product or giving financial advice for a fee or commission must, in all their dealings, meet certain minimum requirements; behave honourably, professionally and with due diligence; provide appropriate advice; and are subject to disciplinary procedures if they do not adhere to the FAIS Act.

A financial service provider (FSP) or an FSP representative must always provide financial services honestly and fairly and with due skill, care and diligence. The service must be in the customers’ interests, and uphold the integrity of the financial services industry.

If a consumer receives inappropriate advice or if a financial service provider (FSP) or FSP representative has not followed the proper procedures, the consumer is entitled to complain to the Ombud for Financial Service Providers. A determination by the Ombud is legally binding.

Policyholder Protection Rules 2004

The Policyholder Protection Rules were issued in terms of Section 55 of the Short-Term Insurance Act and Section 62 of the Long-Term Insurance Act, and replace the rules first issued in 2001.
The Policyholder Protection Rules are separate from those in the code of conduct for financial advisers set out in the Financial Advisory and Intermediary Services (FAIS) Act.

The rules have a strong consumer protection bias, and ensure that policies are entered into, executed and enforced in accordance with sound insurance principles and practice, in the interests of all the parties and the public.

The Short-Term Insurance Policyholder Protection Rules apply to any short-term policy, such as motor vehicle or household policies, or public liability policies (for example, those covering third party payments after motor vehicle accidents), where the policyholder is a natural person. The short-term rules do not apply to commercial policies, such as those which solely cover your business.

General Provisions
In terms of the rules, an insurer must inform the consumer, in writing, of a policy issued to them. The insurer must advise the consumer of any internal complaint resolution systems and procedures, as well as full particulars relating to the short-term and long-term insurance ombudsmen.

No insurer may ask or induce a consumer to waive their rights in terms of the rules, and if they do give any such waiver, it will be regarded as void. No insurer or intermediary may allow a consumer to sign a blank or partially completed form necessary for entering into a policy.

Direct Marketing
A direct marketer is an insurer who uses direct marketing methods, rather than working through an intermediary or broker. Typically, direct marketers use telephone sales consultants and advertising to sell their policies.

The Policyholder Protection Rules relating to direct marketers are similar to those laid out in the FAIS Act that applies to insurance brokers.

Financial Services Ombud Schemes Act 37 of 2004

The Financial Services Ombud Schemes Act (amongst other things):

  • Creates a mechanism for statutory recognition of voluntary schemes (long-term insurance ombudsman, short-term insurance ombudsman and banking ombudsman).
  • Determines minimum standards required for recognition.
  • Provides for an independent controlling body for each scheme.
  • Recognises voluntary schemes.
  • Provides consumer recourse by way of holistic, standardised mechanisms for client complaints with regard to the financial institutions or services in a procedurally fair, informal, economical, equitable and expeditious manner.


On the Car Insurance Blog we will strive to assist vehicle owners, financial advisors, insurers and industry bodies in creating awareness of car insurance and the importance of car insurance for road safety. This will also include the objectives to create awareness of:

  • Legislation in the car insurance industry
  • Legal requirements in providing car insurance advice
  • Consumer protection to vehicle owners and car insurance policyholders
  • Criminal law and car insurance fraud
  • Contesting car insurance claims /disputes
  • Role of the Ombudsman in achieving fair adjudication of insurance disputes
  • Discussion of Decisions made by the Ombud for Short Term Insurance

We will discuss these important aspects in Blog Posts and seek to facilitate interaction with car insurance policyholders.