Insurance industry is under siege from rule by decree

Insurance industry is under siege from rule by decree

by Robert Vivian, November 　

THE attack on the sustainability of South Africa's insurance industry from the Financial Services Laws General Amendment Bill 2012 should be rigorously opposed.
It is part of a dangerous trend whereby, instead of Parliament passing laws and the executive running our country in terms of these laws, government departments and institutions are, via Parliament, taking for themselves extraordinary powers, which undermines our constitutional democracy.
The implications go far beyond the insurance industry and set a dangerous precedent that grants unelected officials and not Parliament the power to make law while operating below the radar of public scrutiny. Parliament is divesting its legislative powers to government departments and institutions, thus accelerating our plunge down the slippery slope from the rule of law to the rule of man (read bureaucrats), with citizens losing more and more of their rights and liberties.
Previously only Parliament could make laws and, in certain cases, a minister could make regulations, provided such regulations were framed strictly within the empowering legislation. Then section 55 of the Short-term Insurance Act introduced the novel idea that a salaried, unelected and unaccountable regulator could introduce "rules", provided they had been approved by the minister and had been made available for public comment. The minister would then make these into law.
Now, the new bill seeks to remove the minister from the process entirely, giving the regulator the authority to pass its own legislation, without so much as a by-your-leave to Parliament or the minister.
Not even Parliament has some of the powers now being handed to unelected officials, enabling them to enjoy arbitrary authority to operate as states within the state.
The new section 55 proposes, among other things, to replace the existing section of the Short-term Insurance Act (and the corresponding section 62 of the Long-term Insurance Act) to empower the registrar, and not the minister, to make "rules" simply by notice in the Government Gazette. Now the minister, and therefore the Cabinet and Parliament, are altogether removed from the law-making process. The English fought a civil war to show a king that he could not do exactly that.
This extraordinary proposition will make the regulator both legislator and executive, with the presumption of all relevant parliamentary and ministerial powers.
This seemingly innocuous section is dangerous and citizens need to be alerted to what is going on. This is part of a continuing trend that now involves the insurance industry but it is neither the first nor the only sector to follow this route: next time, who knows which sector will fall into this trap? It cannot be allowed to continue.
The new section 55 also specifically authorises the regulator to operate in terms of bills of attainder (an act of a legislature declaring a person or group of persons guilty of a crime and punishing them without a judicial trial). In terms of constitutional theory, not even a Parliament can issue a bill of attainder. Such bills are specifically forbidden in countries such as the UK and the US, for a very good reason: they constitute a direct threat to liberty.
A bill of attainder is a specific law aimed at a specific individual or entity, usually dealing with a specific matter. Not even Parliament can issue a bill of attainder, yet, under the proposed section 55(3)(b), this regulator, which is part of the executive branch, will be able not only to issue bills of attainder but also to operate in terms of thereof. SA would have moved to arbitrary government by decree. If this is allowed, SA will have an extraparliamentary regulator acting as a state within the state and operating in terms of its own arbitrary decrees.
The civilised world has not had a government operating by decree since before the Roman age.
The nature of bills of attainder and why they are prohibited in constitutional democracies, and by convention in countries without a written constitution such as the UK, is best illustrated by history and an example from the English Civil War, which in the end saw King Charles I being defeated by the Commons army and executed. Since it was believed that the king was appointed by God and could do no wrong, the Commons initially did not attack the monarch and instead, the Earl of Strafford, then adviser to King Charles I, was charged by the Commons with high treason. Parliament absurdly attempted but failed to convict the earl of the charge, which carried the death sentence. Instead, they passed a law simply sentencing the earl to death. This was a specific law sentencing a specific person to death without any valid reason in law or due process. The authority to execute him was the act itself. The earl was then executed in terms of what became known as a bill of attainder.
Since it was clear that everyone’s liberty was at risk if Parliament could pass bills of attainder, they were quickly outlawed by constitutional convention or by stating in terms of the principle (as SA’s constitution does) that Parliament can pass only laws of general application.
The last bill of attainder in the UK was passed in 1798, although occasionally, in ignorance, bills of attainder have been suggested, as appears now to be happening in SA under the Financial Services Laws General Amendment Bill.
Clearly the government’s law advisers and the regulator do not grasp this crucial aspect of constitutional law as, under the proposed section 55 (3)(b), the regulator will have the power to make specific "rules" for specific persons dealing with specific issues, and may in effect apply these rules differently for different individuals and companies. Yet, precisely to protect citizens, the constitution states that Parliament can make laws of general application only and not specific laws for specific people.
This means that the insurance regulator would be granted powers not even Parliament has and which would be acting outside of our constitution to grant.
An erroneous view is held by some that bills of attainder can apply only to life and not property because, as in the case of the Earl of Strafford, bills of attainder are associated with executions in the minds of many.
However, the US Supreme Court has made it abundantly clear that this is not correct. Moreover, before 1994, Parliament was well aware of the prohibition of bills of attainder. One of very many good examples of this is the Stock Exchanges Act 1 of 1985, which was not the "JSE Act". A JSE Act would have been a specific law for a specific purpose and not a law of general application.
The Financial Services Laws General Amendment Bill will in effect allow the regulator to act as if is were the "owner" of the industry, and not just the regulator.
This would be an extraordinary state of affairs and contrary to the rule of law. It is the abrogation of private property and means, in effect, nationalisation by regulation.
The entire section 55 of the proposed bill must be rejected by Parliament and subordinate legislation should be returned to its historical format.
For good measure, the existing section 55 should be repealed and the concept of "rules" made by regulators should be abandoned if we are to defend the good reputation of our country’s constitution, its insurance industry and the rights and liberties of its citizens.
• Vivian is professor of finance and insurance at the School of Economic and Business Sciences at Wits University.