Gap cover rules under the Demarcation Regulations

The Demarcation Regulations let insurers sell gap cover but fence it in. As gazetted in 2016, they cap the benefit per person per year, limit waiting periods, restrict when an insurer may cancel the policy or change its price, and control how it is marketed. The rules sit in Part 7 of the Regulations under the Short-term Insurance Act.

Olvian is a lead-referral service, not an insurer, broker or adviser. This guide sets out what the regulation says so you can ask the licensed provider that calls you informed questions.

What are the Demarcation Regulations?

The Minister of Finance published them in Government Gazette 40515 on 23 December 2016, with the concurrence of the Minister of Health. National Treasury's media statement of that day says they "specify which types of contracts are regulated under the LTIA and STIA as health policies and accident and health policies, respectively, and accordingly are excluded from the Medical Schemes Act".

The same statement says the Regulations take effect on 1 April 2017. All new policies written after that date had to comply. Existing short-term policies had to align by 1 January 2018.

For gap cover, the relevant provisions are in the table in regulation 7.2(1) (category 1, medical expense shortfall) and regulations 7.3 to 7.6. Our guide on what gap cover pays covers the product itself.

Is there a cap on what gap cover pays?

Yes. Category 1 in regulation 7.2(1) says the policy benefits must "in aggregate, not exceed R150 000,00 (one hundred and fifty thousand Rand) per insured person per annum".

That is the figure in the December 2016 gazette. Regulation 7.2(2) says all amounts in the table "escalate annually, from the effective date of this Part, by the Consumer Price Index (CPI) annual inflation rate published by Statistics South Africa". National Treasury publishes the updated amounts each year, so the cap today is higher than the 2016 figure. The provider who calls you should be able to tell you the current one.

The cap is a legal ceiling on what a policy may promise. It is not a statement of what any particular policy pays. The policy schedule shows its own limits.

How long can a gap cover waiting period be?

Regulation 7.3(5) allows a general waiting period of up to three months and a condition-specific waiting period of up to 12 months.

The Regulations define the two terms in regulation 7.1:

• A general waiting period is a period in which the policyholder is not entitled to claim any, or may only claim certain, policy benefits.
• A condition-specific waiting period is a period in which the policyholder cannot claim for a condition for which medical advice, diagnosis, care or treatment was recommended or received in the 12 months before the day the policy was entered into.

Two further rules limit repeated waiting periods:

• Regulation 7.3(6). An insurer may not impose a condition-specific waiting period if the policyholder had, for at least 90 days before entering the new policy, an accident and health policy with materially similar benefits and had completed the condition-specific waiting period on it.
• Regulation 7.3(7). If that earlier waiting period had not expired, the insurer may impose only the unexpired part.

Keep the old policy schedule and the date your waiting period ended. The new provider will want to see them.

When can an insurer cancel a gap cover policy?

Regulation 7.3(10) limits cancellation to two cases:

1. the policyholder fails to pay the premium within the time allowed in the contract (subject to any legislative requirements), submitted fraudulent claims, or committed any fraudulent act; or
2. the insurer will no longer offer the specific product line, and has given all policyholders in that product line 90 days notice before termination.

Regulation 7.3(11) says termination includes the insurer's non-renewal of a contract.

Can the insurer change my premium or terms?

Only in a limited way. Regulation 7.3(8) says that for this Part, variation of a contract includes premium adjustments. Regulation 7.3(9) says a contract "may be varied as a result of the health or claims experience of all policies forming part of a product line but may not be varied as a result of the health or claims experience of an individual policyholder".

In other words, a price change can follow how the whole product line is performing. It cannot be aimed at one person because that person claimed or fell ill.

The age rule in regulation 7.3(4) is the one deliberate exception. An insurer may require a policyholder who enters after a specific age to pay a higher premium than someone who entered younger, if everyone entering the product line after that age pays the same higher premium. This guide gives no premium figures, because the Regulations set none and they differ by provider.

What must the contract say?

Regulation 7.4(2) says the contract must, in clear and easily understood language:

• state the premiums payable and the policy benefits to be provided;
• state the events in respect of which benefits are provided and any circumstances in which they are not provided; and
• identify the representations you made to the insurer that it regarded as having a bearing on exclusions under a condition-specific waiting period, and the reasons for differentiating premiums by age.

If a document you were given does not do this, ask the provider to point out where it does.

How may gap cover be marketed?

Regulation 7.5(1) controls the words and the impression:

• Marketing may not identify the contract by the term "medical", "hospital" or any derivative, except that "medical" may be used for gap cover only if always followed by the words "expense shortfall".
• It may not create the perception that the contract is a substitute for medical scheme membership.
• It must display, in clear legible print in a prominent position: "This is not a medical scheme and the cover is not the same as that of a medical scheme. This policy is not a substitute for medical scheme membership."

If something you are shown calls gap cover "medical insurance" or implies it replaces a medical scheme, you are entitled to question it.

Who watches over these rules?

Under regulation 7.6, at least one month before marketing or offering a new product line, an insurer must give the Registrar and the Registrar of Medical Schemes a summary of its benefits, terms, conditions and marketing material. The Registrar can ask for more at any time, and can instruct the insurer to stop marketing a product, stop offering or renewing it, or amend it.

Complaints about a claim are a different route. Our guide on gap cover claims and complaints explains it.

What should I ask the provider who calls me?

Olvian does not advise on whether anyone needs gap cover. These are factual questions:

1. What is the current annual benefit cap on this policy?
2. Which waiting periods apply to me, and will you recognise my earlier gap policy?
3. On what grounds can you cancel or not renew the policy?
4. How would a price change be decided, and would it follow my own claims?
5. Where in the policy are the events covered and the exclusions set out?

Sources

• Regulations under the Short-term Insurance Act, 1998, Part 7, Government Gazette 40515, 23 December 2016: regulations 7.1 to 7.6 and 8.2. https://archive.treasury.gov.za/legislation/regulations/FinalDemarc2016/GG_ST%20Demarcation%20Regs.pdf
• National Treasury, media statement on release of the final Demarcation Regulations, 23 December 2016. https://archive.treasury.gov.za/legislation/regulations/FinalDemarc2016/2016122301%20-%20Demarcation%20press%20statement.pdf
• National Treasury, media statement on the 2024 escalation of policy benefits (regulation 7.2(2)), 30 May 2024. https://www.gov.za/news/media-statements/treasury-2024-escalation-policy-benefits-regards-demarcation-regulations-30

The figure quoted is the December 2016 amount, before annual escalation. Check the current escalated amount published by National Treasury and the Financial Sector Conduct Authority.