In a bid to modernise its financial services sector, Lesotho introduced the Insurance Act No. 12 of 2014, repealing the outdated Insurance Act of 1976. This legislative overhaul was intended to align Lesotho’s insurance sector with contemporary global standards. However, despite its enactment, critical components of the new insurance regime remain unimplemented, most notably, the lack of a clear regulatory definition for funeral insurance policies.
This legislative gap became evident in the 2019 Revenue Appeals Tribunal decision in Metropolitan Lesotho Limited v Lesotho Revenue Authority, where the Tribunal found that the Central Bank of Lesotho, designated as the Commissioner under the Act, had yet to issue regulations defining funeral insurance. As a result, outdated frameworks under the 1976 law remain in force, and funeral policies are taxed differently from life insurance, creating uncertainty in the insurance and pension sectors.
Why Is the Definition of Funeral Insurance Urgent?
Under Section 2 of the Insurance Act 2014, the Commissioner has the authority to define funeral policies through regulations. The absence of these regulations has real-world consequences:
- Funeral insurance income is taxed, while life insurance income is tax-exempt under Section 100 of the Income Tax Act.
- This tax treatment contradicts standard actuarial and insurance principles, since both types of policies are triggered by death and provide financial payouts to beneficiaries.
The failure to harmonise these legal instruments undermines the effectiveness of the 2014 reforms and introduces legal uncertainty for insurers and pension funds in Lesotho.
National and International Legal Obligations
The Commissioner is not only empowered but obliged to issue the missing regulations. This obligation arises from:
- Domestic administrative law – Lesotho’s legal framework requires the executive to act reasonably and without undue delay when exercising delegated legislative authority. A delay of nearly a decade falls far short of this standard.
- Treaty obligations – Under instruments such as the African Charter on Human and Peoples’ Rights and the SADC Code on Social Security, Lesotho must take steps to protect its citizens against life contingencies, including death. Properly defining and regulating funeral insurance is essential to achieving these obligations.
Impact on Pension Funds and Social Security
The introduction of the Pension Funds Act No. 5 of 2019 has created new incentives for regulatory clarity. Pension funds are now expected to offer funeral and other risk-related benefits to members. Without a proper legal definition for funeral insurance:
- Pension funds may face tax exposure when procuring such benefits.
- Members and their beneficiaries are deprived of affordable and secure long-term insurance cover.
- Social protection objectives under the Constitution and treaty law remain unmet.
Defining funeral insurance would allow pension funds in Lesotho to access tailored insurance products, reduce costs, and advance national social security goals.
Legal Remedies for Regulatory Delay
Two main avenues are available to compel the Commissioner to act:
- Judicial Review: Courts may review the Commissioner’s prolonged inaction as an “unreasonable delay,” especially when that delay frustrates statutory and constitutional duties.
- Parliamentary Oversight: As the Commissioner is part of the executive, Parliament may invoke Section 88(2) of the Constitution to demand accountability and require the promulgation of the necessary regulations.
Both remedies, while procedurally distinct, are grounded in the principle that public officials must exercise their powers in good faith and within a reasonable time.
Regional and Comparative Context
Lesotho lags behind other SADC member states. Countries such as Botswana have adopted comprehensive classifications of long-term insurance, including funeral, disability, and health products, under their own insurance laws. Lesotho’s continued failure to define funeral insurance risks undermining regional integration, investor confidence, and financial sector credibility.
Conclusion: Time for Action
Nine years after adopting the Insurance Act of 2014, Lesotho’s insurance regulatory framework remains incomplete. The Commissioner must urgently act under Section 2 to define funeral insurance policies and remove the legal and tax anomalies that currently exist. Doing so will:
- Enable full implementation of Lesotho’s insurance reforms.
- Provide certainty to pension funds and insurers.
- Ensure compliance with domestic and international obligations.
- Promote social protection and economic stability.
For Lesotho’s insurance and pension sectors to thrive, regulatory certainty is non-negotiable. It is time to complete the unfinished business of the 2014 reforms, for the benefit of citizens, financial institutions, and the broader economy.