Authored by Michael McCarthy
In April 2026, the High Court dismissed an application for default judgment by a lead provider attempting to recover unpaid lead fees from a financial services provider (FSP). The court found that the “Lead Referral Agreement” was unenforceable because the lead provider was appointed to “market” the non-life insurance products.
According to the court, neither the agreement nor the particulars of claim stated whether the plaintiff and defendant were registered financial services providers “or what their status was within the labyrinth of legislation governing the provision of financial services – in particular insurance products – in South Africa.” The defendant is an authorised financial services provider according to the website of the regulator.
According to the Lead Referral Agreement, the lead provider would refer potential policyholders to the FSP and market the products of the FSP, for which it would be paid ongoing referral fees based on the percentage of revenue derived from the leads who sign up for the insurance products. The agreement stated that the FSP was “in the business of providing short term insurance products” and a policy was “a valid short-term insurance policy concluded between a Lead and [the FSP], and specifically includes passenger liability insurance policies”. The lead provider was to be paid 10% of the premiums received by the FSP on passenger liability insurance, and 50% of the statutory commission payments for all other lines of business. The court concluded that the FSP appeared to have acted “as a short-term insurer (which receives premiums) in respect of passenger liability insurance and as a broker (which receives statutory commissions) in respect of other lines of business insurance.” The court got this wrong. As a private company, the defendant could not be an insurer and is presumably a broker or underwriting manager.
Despite the agreement stating that the lead provider would not perform any intermediary functions, the agreement recorded that the lead provider would act “as marketing agent and lead referrer only” for the FSP. The judgment reiterates the principle that a person may not render intermediary services, including marketing and selling financial products, without being authorised to do so. The court’s conclusion that payment of a fee is not a lead fee if it is a percentage of commission is also wrong.
The position is confirmed by the Financial Services Board in its “Retail Distribution Review 2014” as follows:
- A lead provider either provides an intermediary or product supplier with names and contact details of potential customers whom the intermediary or product supplier may approach with an offer to provide advice or other services, or the customer is provided with the details of the intermediary or product supplier.
- A lead provider is remunerated “in some form” by the product supplier or intermediary.
- Importantly, “the current FAIS regulatory framework does not regulate the provision of referrals and leads or their remuneration” unless a conflict of interest exists.
- Remuneration “could fall within the scope of the commission regulations under the insurance laws if the lead or referral is related to the entering into of an insurance policy”.
Further, the judgment wrongly refers to section 8(2) of the Short-term Insurance Act of 1998 which does not relate to a policy underwritten by a South African licensed insurer.
Much of the judgment can be ignored as incorrect but the core finding that marketing a policy (sometimes called ‘warming a lead’) is not lead referral. It is a regulated intermediary service.