In September 2023 the Supreme Court of Appeal held that, where 8 000 individual funeral policy members had formed part of a group scheme under the Long-term Insurance Act 1998 which was no longer a “group” scheme as defined in the Insurance Act 2017 from 01 July 2018, the insurance policies and the related intermediary agreements became invalid and unenforceable. It was the duty of the insurer and the intermediary to change the terms on which they conducted business within the two year window period after 01 July 2018 to preserve the rights of policyholders.

From 1 July 2018 the scheme did not qualify as a group scheme under the 2017 Act which requires “an autonomous association of persons united voluntarily to meet their common or shared economic social needs and aspirations (other than obtaining insurance), which association is democratically controlled”.
The insurer and the intermediary (which sought to move the business to another insurer and to have the debit orders moved accordingly) conceded that the group did not comply with the current legislative provisions. It therefore became unlawful for both insurer and intermediary to continue with the group arrangement. The legislature has an express prohibition on group schemes which do not comply with the requirements set out above. The contracts were therefore afflicted by supervening illegality of performance, and performance under such contracts is a nullity.

The fact that the judgment found in favour of the insurer does not amount to the court sanctioning the insurer’s non-compliance with the 2017 Act, nor its subsequent conduct in continuing to receive premiums and to carry on business as usual without making substitute arrangements under section 67 of the 2017 Act.

The Funeral Federation of South Africa was a friend of the court in the matter. The court, having regard to their submissions as to the consequences of this outcome for the funeral industry, directed that a copy of the judgment be referred to the Prudential Authority. These issues have been known for some time and the hope is that something will now be done to relieve the position.

The important issue of what arrangements could be made under section 67 was not addressed. A group scheme under the 1998 Act only required a scheme or arrangement which provided for entering into one or more policies in terms of which two or more persons without an insurable interest in each other were the lives insured. A possible remedy under section 67 would be to substitute the premium-paying member lives assured as the policyholders, thus allowing the premium collection to continue for their individual policies and the insurance to be maintained. The treating customers fairly principles also demand that there should be no unnecessary barriers for the insured persons to move their policies to another insurer offering better terms (as was the case in this matter). Leaving the policyholders with invalid insurance instead of better insurance does not fulfil any objective of the insurance legislation. The best solution would be for the Prudential Authority to endorse the use of the provisions of section 67 to get such an outcome. This is not an issue affecting only the 8 000 policyholders in the present matter. It affects multiples of that amount of members throughout the funeral insurance industry. Each policyholder in this present case is paying their premiums from their SASSA grants directly to the insurer, and in everything but strict name they are the policyholders and can be accommodated as individual policyholders under section 67 arrangements.

[KGA Life Limited v Multisure Corporation (Pty) Ltd and others [2023] ZASCA 122 (20 September 2023)]