What normally is understood with insurance is that an insurer provides an insured with a policy against risk on their property.309 Premiums are paid, and when loss or damage occurs to the insurable property, the insurer pays the amount of the property's value.310 For the purpose of this research discussion, it is important to evaluate not only the role players normally known to the public, such as insurance brokers and insurers but also the role players that are making the above insurance transaction possible without the insured knowing about them.
This analysis focuses on comparing the different legal relationships within the insurance sphere, specifically the South African insurance role players in comparison to the role and function of a Lloyd's coverholder.
309 Lake v Reinsurance Corporation Ltd 1967 3 SA 124 (W) para 127A; Reinecke, Van Niekerk and Nienaber South African Insurance Law 76.
310 Lake v Reinsurance Corporation Ltd 1967 3 SA 124 (W) para 127A; Reinecke, Van Niekerk and Nienaber South African Insurance Law 76.
5.2 The insurance transaction
The insurance transaction is the transfer of risk.311 Insurance is either categorized as indemnity312 or non-indemnity313 insurance.314 The focus of this research discussion is on indemnity insurance. In South Africa, an insurance contract is defined as:315
a contract between an insurer (or assurer) and an insured (or assured), whereby the insurer undertakes in return for the payment of a price or premium to render to the insured a sum of money, or its equivalent, on the happening of a specified uncertain event in which the insured has some interest.
Insurance business,316 on the other hand, is instead a transaction completed by
"persons other than the insured or the insurer".317 These other persons could range from brokers all the way to Lloyd's London syndicate members.318
In international trade, it is understandable that business transactions can be more complex, especially if more role players form part of one main transaction. For example, NWU Ltd owns a Cape size general cargo bulk carrier approximately worth
311 Reinecke, Van Niekerk and Nienaber South African Insurance Law 2-4.
312 “In indemnity insurance the contract between the parties provides that the insurer will indemnify the insured for patrimonial loss or damage suffered as the proximate result of the happening of the event insured against. The insurer indemnifies the insured either by replacing or repairing the lost or damages object of risk, or by paying the insured an ascertainable sum of money.” Reinecke, Van Niekerk and Nienaber South African Insurance Law 8.
313 “In a non-indemnity insurance contract, by contrast, the insurer undertakes to pay a specified – ascertained – amount or (periodical) amounts to the insured on the happening of the event insured against.” Reinecke, Van Niekerk and Nienaber South African Insurance Law 9.
314 Reinecke, Van Niekerk and Nienaber South African Insurance Law 8.
315 Lake v Reinsurance Corporation Ltd 1967 3 SA 124 (W) para 127A.
316 "The reference to 'insurance business' encompasses not only the conclusion of insurance contracts, but any conceivable juristic act or task to be performed by the insurer or the insured." Reinecke, Van Niekerk and Nienaber South African Insurance Law 509.
317 Reinecke, Van Niekerk and Nienaber South African Insurance Law 509.
318 Lloyd's 2011 https://www.lloyds.com/~/media/lloyds/reports/publications/7420_lloyds_quick guide_uk-aw.pdf 4-5.
R 185 770 000-00.319 Just as it stands in the harbour (excluding all the other formalities of keeping it at the harbour and actually sailing), this property is quite an expensive product to have. As would be expected the company (along with all its investors) would benefit from insurance. Disregarding other insurance policies covering piracy or vis major at sea. Just focusing on the ship as it stands at the harbour, the diverse possibilities of role players that form part of this one property is great.
As seen in the Representative of Lloyds v Classic Sailing Adventure case,320 there is a person/company ("insured") seeking protection against risk (loss or damage of property).321 The insured approached an insurance broker, as they are more easily approachable, and the needs for insurance is explained.322 However, this insurance broker does not fully comprehend the complexities of hull insurance, for example.323 The insurance broker then approached another insurance broker who specialises in hull/marine insurance ("the specialized insurance broker").324 The specialised insurance broker directly communicates with an underwriter, who determines if the policyholder's needs can be covered, in other words determining if the risk is worth covering.325
In addition to the above, there are further role players within the Lloyd's of London
319 Horizon Ship Brokers 2021 https://horizonship.com/ship/288m-cape-size-general-cargo-bulk- carrier-1777313-dwt-2003/.
320 Representative of Lloyds v Classic Sailing Adventure (Pty) Ltd 2010 All SA 4 366 (SCA).
321 Representative of Lloyds v Classic Sailing Adventure (Pty) Ltd 2010 All SA 4 366 (SCA) para 3.
322 Representative of Lloyds v Classic Sailing Adventure (Pty) Ltd 2010 All SA 4 366 (SCA) para 11-12.
323 Representative of Lloyds v Classic Sailing Adventure (Pty) Ltd 2010 All SA 4 366 (SCA) para 11-12.
324 Representative of Lloyds v Classic Sailing Adventure (Pty) Ltd 2010 All SA 4 366 (SCA) para 11-12.
325 Representative of Lloyds v Classic Sailing Adventure (Pty) Ltd 2010 4 All SA 366 (SCA) para 12-14.
structure: these were discussed in length during Chapter 3 of this research discussion.
5.3 Where the mandate ends and begins
Each role player will be evaluated against Lloyd's coverholder.326 An insurer is not a coverholder for the reason being that Lloyd's of London is not an insurer, and the same would have been provided for in the South African insurance legislation.327 A coverholder is also not a reinsurer nor a foreign type of insurers for the same reasons stated for the beforementioned insurer. The coverholder is not a normal broker or Lloyd's broker, for the following reasons: 1) the normal broker's mandate is with the insured, and 2) the coverholders mandate is with Lloyd's broker.328 Plainly, Lloyd's broker cannot have a mandate with itself to operate its business.
A coverholder is an independent intermediary.329 However, there is uncertainty as to whether the coverholder only falls within the scope of the independent intermediary or whether the coverholder could be other role players. A coverholder could be a
"general insurance binder holder". Both the role players conclude agreements on behalf of one another. The general insurance binder holder however, concludes specific agreements on behalf of the insurer. However, there is uncertainty as to whether the coverholder could conclude agreements on behalf of the insurer.
326 For the purpose of this paragraph's discussion, reference to a coverholder is reference to the Lloyd's of London coverholder, unless indicated otherwise.
327 See discussion in chapter 2.2 and 3 above.
328 See discussion in chapter 2.5 and 3.5.2 above.
329 See discussion in chapter 2.4 and 3.5.5 above.
The underwriter (including Lloyd's underwriter and underwriting managers) is not similar to the coverholder, as the coverholder is mandated by the underwriter.330 The underwriter's role and function are different from the coverholder since the underwriter accepts risks on behalf of the insured, through the broker.331 As explained previously, the coverholder concludes policies on behalf of the underwriter or broker.332
A coverholder could fall within the scope of the FSP. As explained in section 1 of the FAIS Act, the FSP provides intermediary related services.333 As explained above, an independent intermediary is a Lloyd's coverholder, which, if interpreted correctly means that a coverholder is an FSP. A coverholder is not a client, as the client is the insured, and makes decisions upon the recommendations of insurance role players, such as brokers.334
A coverholder could be a product supplier, as defined in terms of the FAIS Act.
However, if the coverholder does not directly deal with the client, in other words, offer a financial product to another, then the coverholder will fall short of this definition.335 There was clear indication that a coverholder could also be a representative, as this role player provides a service on behalf of another.336 However, the STIA stipulates that an independent intermediary includes a coverholder and the fact that a
330 See discussion in chapter 3.5.5.
331 See discussion in chapter 2.7, 3.5.2 and 3.5.3.
332 See discussion in chapter 3.5.5.
333 See discussion in chapter 4.2.1.
334 See discussion in chapter 4.2.2 and 3.5.5.
335 Section 1 of the FAIS Act.
336 See discussion in chapter 4.2.6.
representative and independent intermediary cannot be the same role player, it would suggest that the coverholder is not a representative.337
5.4 The final analysis
As explained previously, the independent intermediary includes Lloyd's coverholder.338 The intermediary is regulated by the Insurance Act and FAIS Act, as there is a clear link between the two role players, and the same provisions that apply in the abovementioned Acts will then apply to the coverholder. However, there is no evidence that the coverholder is only an independent intermediary.
There is a further link to a general insurance binder holder since both the role players conclude insurance policies on behalf of another role player.339 The provisions of section 48A of the STIA apply to the coverholder, as the binder holder agreement can be concluded with a non-mandated intermediary which is the coverholder.340
A coverholder could also fall within the definition of the FSP, as the FSP provides intermediary related services,341 and as stated above, and in other Chapters, the coverholder is an independent intermediary. This means that the coverholder is regulated by the FAIS Act, specific emphasis is placed on the requirements of sections 7 and 8.342
337 See discussion in chapter 4.2.6 and 3.5.5.
338 See discussion in chapter 2.4 and 3.5.5.
339 See discussion in chapter 2.6 and 3.5.5.
340 Section 6.1 of GN R1076 in GG 34877 of 23 December 2011.
341 Section 1 of the FAIS Act.
342 See discussion in chapter 4.2.1.
The FAIS Act regulates the procut supplier. The coverholder deals with financial products when they conclude policy agreements. However, it is unclear whether the coverholder would be excluded from this definition, as the coverholder does not specifically sell the products, but rather deals with the administrative aspects of the policies.343 In the event that the product supplier could conclusively be linked with the coverholder, the same provisions as set out in the FAIS Act apply to the coverholder.
5.5 Conclusion
The different role players are compared to the coverholder. Similarities and differences are recorded, and the final analysis provides a clearer indication of where the coverholder stands within the South African insurance market. This role player can be compared to four other role players. The only role player that has a clear and definite connection is the independent intermediary. However, there is no mention that the coverholder is only related to the independent intermediary, and due to uncertainty other role players are mentioned, and compared.
343 See discussion in chapter 3.5.5.