Pat Sidley: Business Report,

WHILE Rome burns around us, and all but aid agencies are fiddling, one of the more interesting tunes being played by the fiddlers is familiar to many in the medical scheme and insurance worlds, although it is currently undergoing a slight orchestral rearrangement.

It is known as the "demarcation agreement" and its chorus drones with familiar repetitiveness. When proposed amendments to the long- and short-term insurance laws hit parliament last week, the new arrangement would have meant some uncomfortable changes for the insurance industry.

For the medical schemes industry, it contained profound changes as well - the types of changes regarding health policies that insurers would like to see.

For the Medical Schemes Council, it struck a loud and discordant note, so the regulator of the medical scheme industry will be most pleased that the bills have been held up to allow further input.

The proposed changes would have put the classification of a health policy or a medical scheme within the orbit of the Treasury. Those decisions would have been made by the Financial Services Board, which regulates the insurance industry.

Several years ago a similar point was reached in parliament after Health Minister Manto Tshabalala-Msimang and her predecessor, Nkosazana Dlamini-Zuma, along with the Medical Schemes Council, had fought for the definition to be decided by the health lot. They believed the defining moment would rest on whether or not a product in question could be defined as doing the business of a medical scheme.

If the council decided a policy did the business of a medical scheme, it would have to register as one and follow a tough set of laws to comply with that definition. Products that might have looked like insurance products could be outlawed while products the council deemed to be real insurance policies could be sold as such.

The belief that motivated this demarcation, which to insurers may have looked churlish, rested on the notion that many products which purported to be cheap health insurance products and rated risks differently to medical schemes, would be bought by the young and healthy. If these people did not enter the medical scheme market, a disproportionate amount of bad risk would sit in medical schemes.

A medical scheme can really only exist with a more evenly spread set of risks, partly because it is forced to take on those risks with no penalties.

In the recent Guardrisk case, the courts did not buy the argument, saying the council had not proved the scenario of diluting the medical scheme environment.

When the first battle in the demarcation war was fought (with all the dirt one may imagine in any war) the health side was almost trumped in parliament when an amendment was made rather late in the day and slipped into a bit of proposed law. This change sought to hand the choice to the Financial Services Board and the Finance Minister, Trevor Manuel.

The feverish battle that ensued eventually resulted in a negotiated agreement between the two sectors. While the long-term insurance industry bought into this, the short-term industry never did.

The Guardrisk case was to have been a test of the issues at stake for the short-term insurance industry and the medical schemes industry.

Once again, while threats were made by those on the medical schemes side about changing the law to secure a final say, it appears as if the Treasury pipped them to the post with a set of changes to clauses in the current bills. These would give the Finance Minister and the Financial Services Board the deciding vote over what is a health policy and what is an insurance product.

Last week, however, the two insurance bills were delayed for more discussion and it now seems possible that a real agreement may be reached - but with much more detail and thought - on who decides.

Assessment process

The insurance industry was concerned about several other clauses, but the time has been used to discuss a "process" to review and decide on a mechanism that will allow demarcation decisions to be made on a different basis.

If the hopeful source close to the action can be counted on, this would involve people from both regulators viewing products and making a considered decision.

That, however, is not as simple as it sounds. The Financial Services Board does not, as a rule, assess in detail each product that it allows onto the market. Rather, it licenses a company, which then puts products onto the market.

The Medical Schemes Council, on the other hand, does evaluate every scheme, and each plan within a scheme, before it lands on the market. That is the theory, although many would wonder if this function is sometimes outsourced to Eskom somewhere along the way.

The talks, which appear to be under way, contain the notion that any body formed to make these demarcation decisions should assess the product in front of it. This is what the Medical Schemes Council would like to see, but the insurance industry is unlikely to want to have its products scrutinised that closely

In fact, it is rare for financial services products worldwide to be assessed in detail. Some jurisdictions, of course, do this.

Those who are likely to want to buy policies that have been vetted through such a process will probably feel better protected.

There are obviously those who have been let down, and those who have faced disappointment after believing the protection stuff about medical aids are not likely to feel any better protected by a new process with the same cast of characters. These would include older people, more infirm people and people with expensive diseases needing extensive cover that medical schemes still manage to chisel them out of.