The regulation of insurance brokers — time to tighten the reins?

• Jurisdiction: South Africa
• Pages: 30-41
• Date: 25 May 2019
• Author: Tamara Cohen
• Published date: 25 May 2019

The Regulation of Insurance Brokers

Time to Tighten the Reins?

TAMARA COHEN*

University of Natal, Durban

1 Introduction

Despite the fact that in South Africa millions of rands are handled by

insurance brokers annually, there are no legislative restrictions or

requirements to be complied with before one commences operations as

an insurance broker. This dearth of regulation is surprising in light of the

confusion surrounding the role of the insurance broker, an intermediary

who at times occupies the incongruous position of representing the

interests of two conflicting principals — the insurer and the insured. This

is compounded by the fact that the insured is reliant upon the broker for

impartial and skilled advice. This article will be considering whether this

uncontrolled and indiscriminate use of the tag 'insurance broker'

1

should

be subject to regulation, and if so, what form this regulation should take.

2 Agent for Insurer or Insured?

The principal types of intermediary who arranges insurance cover are

insurance brokers and insurance agents, and the fundamental difference

between them, according to Lush

J

in

Norwich Fire Insurance Society Ltd

v Brennans (Horsham) Pty Ltd,

2

is

'between a person, firm or company which carries on an independent business of placing

insurances upon the instructions of clients and whose basic relationship of agency is with

the client and the insurer's agent whose function is to procure persons to insure with his

principal, the insurer, and whose basic relationship of agency is therefore with the

insurer'.

While this differentiation between the role of the insurance broker and

the insurance agent appears to be quite defined, in practice this

distinction is not as clear. The broker is usually authorized by the

insured to advise on the nature and quantum of insurance cover required,

to procure such cover at the most competitive rate from the most

appropriate insurance company, and to conduct all subsequent insurance

business pertaining to the contract, such as its variation, execution and

enforcement. In performing these functions it is undeniable that the broker

is acting as the agent and representative of the insured. The uncertainty

arises in that the broker is not normally remunerated by the insured but is

* BA LLB (Natal). Lecturer in the Department of Business Law, Faculty of Law, University of

Natal, Durban.

1

See NG Atkins 'Insurance in the Free Market. When Is a Broker . . .?' (1985) 15

Businessman's Law

3.

[1981] VR 981 (SC Vict) at 985.

30

(1997) 9 SA Merc LJ 30

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