| Summary: | The protection of clients in their dealings with insurance advisors is very important. This is
mainly because clients are not too knowledgeable about insurance products. This lack of
knowledge makes vulnerable to exploitation by insurance advisors. It is the duty of the
regulator of insurance to ensure adequate protection of clients in their dealings with
insurance advisors. However, this may not be easily attainable in a jurisdiction like Lesotho
where there is only one regulator for all financial institutions, the Central Bank of Lesotho.
This more so because insurance is very complex as there are different persons and
contracts involved. The client has to firstly deal with insurance advisors or intermediaries
before an actual contract of insurance comes into existence. In Lesotho the insurance
sector is regulated by the Insurance Act 18 of 1976. Although there are systems in place
regarding the regulation of the insurance industry, they are not adequate nor guarantee
effective protection of the clients. These measures are mainly focused on the relationship
between the Commissioner and the insurance advisors and not the relationship between
the insurance advisors and the clients. The ineffectiveness of the current regulatory
framework in Lesotho was exposed by the MKM situation in 2007 which showed that
clients in Lesotho are to a very large extent left unprotected against insurance advisors.
Even the proposed Insurance Bill of 2013 which was meant to address problems not
addressed by the Insurance Act, does not offer any assistance as it contains no provisions
on the protection of clients.
The problem with the legal framework in Lesotho is that does not address the most
important of protection of clients in their dealings with insurance advisors. This is also due
to the fact that there is only one regulator for all financial institutions and this places a very
burdensome duty on the Central Bank of Lesotho. In order to find solutions to this problem,
a comparative study based on literature was done between Lesotho and South Africa. This
is because South Africa on the other hand is more advance. The current legal framework
in South Africa ensures the protection of clients in their dealings with insurance advisors.
The non-banking institutions such as insurance advisors are regulated by the Financial
Services Board. There are systems in place in South Africa regulating the conduct of
insurance advisors towards clients. The Financial Advisory and Intermediary Services Act
is one of the measures in place meant to ensure that those who render advice are fit and
proper by requiring them, amongst others, to be in possession of relevant academic
qualifications and operational ability to dispose of their duties in terms of the Act. This is
different from the position in Lesotho where the only piece of legislation regulating the
insurance advisors is the Insurance Act. Furthermore, by virtue of section 2B of the
General Proclamation of 1884, the common law of South Africa is applicable in Lesotho so
it is important to examine the changes that South Africa has made to it common law on
which Lesotho mostly relies.
The results show that the clients in Lesotho are to a very large extent left unprotected
against insurance advisors as the current legal framework offers them no protection. The
legal framework in South Africa on the other hand affords clients more protection.
However, economic position of Lesotho it would not be ideal to take all measures
applicable in South Africa and apply them to Lesotho as they are. Based on these findings
recommendations made include that the Commissioner must engage in consumer
education to ensure that clients know about their rights in dealings with insurance
advisors. Another recommendation made is that the current legal framework be amended
to include provisions relating to the protection of clients. It is also recommended that the
Central Bank of Lesotho is well equipped to deal with matters relating to the protection of
clients. === LLM (Estate Law), North-West University, Potchefstroom Campus, 2015
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