Travel insurance – agents’ fees must fall

T
RAVEL agents are putting
themselves and insurers
at risk by charging
service fees for booking travel
insurance policies on behalf of
clients without following correct
procedure.
The Financial Services Board
(FSB) stopped the practice of
fees on booked policies four
years ago when it removed
the option of adding a service
fee (of any amount) on a
transaction on an insurer’s
website. The reason was
that agents earned up to
20% commission for booking
policies.
However, if an agency
currently wishes to charge
such fees, known as Section
8(5) fees under the ShortTerms
Insurance Act, it must
(a) provide explicit consent
of the customer, (b) be a
registered financial services
provider (FSP) and (c) have the
fee collected by the insurer.
Because agencies cannot
sell travel insurance – they
can provide a client with leads,
but not make a decision for
them – they cannot register
with the FSB as insurance
administrators. Therefore
they must be placed on their
insurer’s – or its intermediary’s
– FSP license to be considered
a Juristic Representative
administering policies on the
insurer’s behalf. However,
insurers will only agree to
this if they feel the agency’s
agents can provide “specialist
knowledge,” for example,
general risk management
advice, and are worthy of
charging fees.
While agents report they
ensure they have a customer’s
consent before charging fees
for issuing policies, most
admit they have no idea about
the other requirements. As a
result, they’ve been charging
fees directly from the client
ranging from “R50 if we
haven’t done a booking”,
to “R57 for domestic and
R100 for international”, to “a
minimum of R228”. Louise
Cockcroft, head of travel
insurance of Regent Insurance,
warns that if the FSB finds out
that an agent engaged in such
behaviour, it can fine the agent
and agency. Furthermore, if
the FSB catches an insurer
collecting a fee for an
unregistered agency, it can fine
the insurer.
According to Jason Veitch,
head of travel insurance of
TIC, agents are getting away
with issuing policies without
following this procedure due to
grey areas in the legislation.
Rachael Penaluna, business
manager of Sure Maritime
Travel, is one of the agents
who felt that it was unfair not
to be allowed to charge fees
for issuing policies. “Issuing
documentation and paying
for a policy that will cover a
customer’s journey is a full
transaction and they are
therefore compelled to pay for
this service that we offer,” she
said. Debbie Joubert, md of
Sure Travel 24-7, says the only
way an agency can survive is
by charging fees.
Jason says the travel
insurance community has
been engaging with the FSB for
years to clarify the grey areas
in the legislation. But, because
agents have been doing a
superb job at distributing
policies for three decades,
there’s no sense of urgency.
That aside, Louise says
legislative changes are on the
way under a project called the
Retail Distribution Review of
Travel Products, in which the
option of charging Section
8(5) fees will be removed
completely – even for agencies
that meet the current criteria
for doing so.