Dear Business Partner,

Welcome to our August edition of Cinagi News – we know that as financial services providers, there are many publications, news and regulatory updates to digest, so we like to keep our pieces short and succinct but hope that you find them valuable and give you some insight into industry matters.

Overview: The Gap Cover Market & Circular 80 and the future of Low Cost Benefit Options (LCBO)

The Gap Cover Market

Many brokers have over the years asked me how big the gap cover market is and usually they are surprised at the low level of participation. There is unfortunately no central data collection to rely on, but my own industry analysis indicates a market of ±700,000 policies out of the roughly 4 million medical scheme families.

So that is only a participation of around 17%, meaning that around 3.3 million medical scheme families do not have gap cover. Discussions with various large broker houses corroborates the 17% participation level.

The table below illustrates how the ‘gap’ grows each year, representing the ever growing need for gap cover. Medical scheme tariffs typically only increase at CPI level whereas specialists’ fees increase at higher levels – this means that the ‘gap’ grows at an even higher rate than the increase of specialist fees.

2019 2020 % Change
Medical Specialist Fee R10,000 R11,000 10%
Medical Scheme Tariff R4,000 R4,240 6%
Difference (Gap) R6,000 R6,760 12.7%

Given this growing need for gap cover, the very significant unserved market is a huge opportunity for healthcare intermediaries to better serve their clients.
Circular 80 and the future of Low Cost Benefit Options (LCBO)

The CMS recently published Circular 56 which has provided an anticipated 1-year extension until 31 March 2022 for exempted insurers under the Demarcation Exemption Framework (DEF). The circular also indicated that the 2 advisory committees established earlier this year and tasked to build the Low Cost Benefit Option (LCBO) framework, will now convene virtually to commence that process.

The upside of this development is that sufficient time is now available to build LCBO and that the provisions contained in Circular 80 of 2019, which sounded the death knell for primary care products and LCBO, has effectively been reversed. The intent remains for the exempted primary care insurance products to shut down by 31 March 2022 and for the policyholders under these products to migrate into a LCBO product within a medical scheme.

We understand that exempted insurers are either aligning with medical schemes in order to migrate their members into a LCBO option or they are applying for registration of a new medical scheme.

The CMS has also issued exemption renewals to insurers with specific dates for adherence to the various conditions of their exemptions. One of these conditions is for broker commission to be capped at 3% of premiums – insurers are required to adhere to this by 31 March 2021.

Most intermediaries I have spoken to have indicated that this level of commission is insufficient to cover the costs of servicing members. If this level of commission stays, then brokers will have to revise their servicing models to include less services than are currently delivered. Additional services required from intermediaries could be carried by employers/members on a professional fee basis.

I welcome any comments or queries – feel free to drop me a note on

Best wishes & keep safe!

Mike Settas