House passes amendment to insurance law to protect beneficiaries

Winston Jordan

The National Assembly on Thursday evening passed an amendment to the Insurance Act that is intended to incorporate protections for the beneficiaries of policy holders, which had been left out from the two-year-old legislation.

The Insurance (Amendment) Bill 2018 was passed unanimously after the government agreed to an opposition request to remove words directed at children born outside of a legal union.

After opposition Member of Parliament (MP) Irfaan Ali raised an objection to the inclusion of the words “born out of wedlock,” the PPP/C’s Chief Whip Gail Teixeira rose and asked for an amendment to have them removed, while arguing that they conflicted with the equal rights for all that the Constitution guarantees.

Gail Teixeira

The original Section 271 (4) of the bill, which deals with irrevocable designation of beneficiaries, stated: “An irrevocable designation may only be made by a policy-holder in favour of a spouse, a common-law spouse or to a child, including a child born out of wedlock.”

Ali made it clear that those words should have been noticed by and objected to the Social Protection Minister. “There is nothing like a child born out of wedlock. We should put a full stop at child… That is my recommendation,” he said.

As Speaker Dr. Barton Scotland was going through the amendments clause by clause in preparation for the vote, Teixeira asked the House to amend Section 271 (4) so that it ends at the word child. Her request did not go down well with those on the government side. It was at this point that Scotland asked for a vote on the proposed amendment.

There was a loud “yes” from the opposition, followed by a not quite as loud “no” from the government parliamentarians. In the midst of exchanges between the two sides, Teixeira rose and stressed that those words conflict with the Constitution, which states that all persons, including children, are created equal.

After a few minutes, Finance Minister Winston Jordan, who tabled the bill, informed the House that after consultations with his colleagues, he was agreeing to the amendment.

Omitted

Earlier, during his opening remarks in the debate of the bill, Jordan described it as a “quick amendment” to the “comprehensive” 2016 legislation, which had provided a consolidated legal framework for the supervision of insurers.

Anil Nandlall

He noted that the amendments are mainly for the protection of beneficiaries of life insurance, which he said were “inadvertently omitted” from the substantive legislation. It was intended for the provisions to have been incorporated as regulations to be made under the authority of the Act.

“However based on technical advice on [the] ground that because the issue had not been adequately addressed in the body of previous substantive legislation, it could not be introduced in the regulations, there is therefore now need for it to be included by way of amendment in the substantive legislation,” he said.

Jordan explained that the provisions relate in the main to the status and rights of beneficiaries of life insurance contracts, which provide a capital sum for a specific purpose following death.

He pointed out that the right of the beneficiaries to the proceeds under the respective policy constitutes one of the most important areas of life insurance law as it deals in a comprehensive way with two categories: beneficiaries who are subjected to the law of privacy of contract and have no right to sue to enforce the policy effective for their benefit, and beneficiaries for whom a trust was created under the married persons and property act legislation, that is, the spouse or children of the insured person.

Delay in implementation

The opposition parliamentarians who spoke on the bill recorded their support from the outset and they all asked Jordan to explain how the amendments came to be excluded from the existing legislation.

PPP/C MP Anil Nandlall made it clear that the bill represented a commendable effort to ensure that the omissions were addressed and he said that it was a timely intervention as the situation was creating a whole lot of problems.

Nandlall, however, called on the minister to explain why the Act was not in operation two years after it was passed in the House. “That is something, as legislators, that we ought to avoid. It is our expectation that it will be brought into force with every convenient speed. We have to cease this practice because I see this bill… has retroactive effect,” he said.

Ali inquired whether there would be any attempt by minister to develop an education programme to educate citizens about the law and the amendments. He pointed out, too, that there were some parts of the bill which require explanation as the lending rate and the cost of borrowing would be affected.

In closing, Jordan explained that the amendments were inadvertently omitted, while stressing that “to err is human.” With regards to the delay in enforcing the legislation, he said that the regulations for the law, which are very extensive and complex, had to be drafted and this process “took quite a while.” He was sure that there was no attempt to delay the early implementation of the legislation. “The two years was just to ensure that we had all the regulations in place,” he said, while adding that external personnel was required to assist in the drafting. “The long and short is that the bill and the regulations are in place and that is what we need to concentrate on right now,” he stated.

According to the bill’s explanatory memorandum, it seeks to amend the Insurance Act by the insertion of new Parts XX, XXI and XXII, which address the areas of contracts for long-term business, protection of policies, and paid up policies, surrender values and non-forfeiture.

Part XX provides for various areas related to contracts for long-term insurance business. It provides that an insurer shall not enter into a contract for the purpose of long-term insurance business unless, at the time the contract is entered into or not later than seven days after the contract is entered into, the insurer serves on the other party to the contract a notice specifying the nature and type of policy and annexes a form of notice of cancellation for use by the other party to the contract. The bill makes it an offence for an insurer to contravene this provision, however, this contravention does not invalidate the contract. In addition, the bill provides for the manner in which a person may serve a notice of cancellation on the insurer.

Clauses 266 to 268 of Part XX provide for matters related to proof of age in respect of policies including the procedure to be adhered to should a company decline proof of age tendered in respect of a policy and also the effects of a misstatement of age and non-avoidance of a policy due to such misstatement.

Clause 269 provides for the circumstances under which a minor may effect a policy upon his own life or that of another or take an assignment of a policy. It provides that a minor who has attained the age of ten years but has not attained the age of sixteen years may effect a policy or take an assignment of a policy with the written consent of his parent or a person standing in loco parentis to the minor. The bill also addresses the circumstances under which a minor who has attained the age of sixteen years may do so.

Clauses 270 to 279 of Part XX provide for issues related to the beneficiaries. These provisions allow a named beneficiary to enforce payment of a life policy effected for his benefit. The bill makes provision for the irrevocable designation of beneficiaries and provides that an irrevocable designation may only be made in favour of a child, spouse or common-law spouse. The designation can be changed only if the named beneficiary dies or, in the case of a spouse, if the marriage comes to an end. The bill further provides that a designation of a beneficiary by a will does not affect a designation made under the policy.

The explanatory memorandum says Part XXI seeks to provide for the protection of policies, in particular the application of policies to debts.

The bill provides that the property and interest of any person, in a policy effected upon his own life, is not liable to be applied or made available in payment of his debts by any process of any court. Part XXI also provides that a pro rata condition of average in an insurance contract is of no effect unless the insurer informs the policy-holder of the nature and effect of the condition before the contract is entered into or before the policy-holder can cancel the policy without penalty.

Part XXII provides for paid-up policies, surrender values and non-forfeiture. Clause 283 of Part XXII provides for the circumstances under which a policy-holder who desires to discontinue further premium payments on a policy is entitled to a paid-up policy and the manner in which the policy shall become payable.

Clause 284, which addresses surrender value, provides that the owner of a policy which has been in force for at least three years is, on application to the company, entitled to surrender the policy and receive not less than the cash surrender value of the policy less the amount of any debt owing under the policy.

 Clause 285 provides that the bank may, on application by a company, suspend or vary the obligation of the company to pay the surrender values where in the opinion of the bank, it may be prejudicial to the financial stability of the company or the interests of the policy holder.

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