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SAICA warns on insurance shake up
A new accounting standard for the insurance industry - expected to come into force in 2014 will likely have a big impact on the medical aid sector and on start-up insurance companies which could lead to insurers passing on the cost of upgrading their systems to consumers. This is according to the South African Institute of Chartered Accountants (SAICA).
Insurers still have seven weeks to influence the new standards, which are likely to change medical aid contracts from short-term contracts to long-term contracts.
Under the current accounting standard, medical scheme contracts are viewed as annual and therefore short term insurance contracts, but if the changes go through, "suddenly they'll be seen and accounted for as long term insurance contracts," explains Shaun Osner, deputy chairman of SAICA's Medical Schemes Project Group.
Significant changes
"The exposure draft proposes a contract boundary principle that determines which future cash flows must be included in the measurement of medical scheme contracts.
"This could potentially change the term of a medical scheme contract to as long as a 50-year contract," says Yusuf Dukander project director for financial services at the South African Institute of Chartered Accountants.
There will also be significant changes to how costs relating to insurance contracts will be accounted for.
Which will result in certain contracts reflecting a loss initially, even though the contracts would be economically profitable in the long-term.
Source: I-Net Bridge
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