FSCA: Draft Conduct Standard – Requirements for the conduct of cell captive insurance business in relation to third party risks

On 20 July 2018, the Financial Sector Conduct Authority (FSCA) published for comment, for a period of six weeks, a draft Conduct Standard setting out requirements for the conduct of cell captive insurance business in relation to third party risks.

The draft Conduct Standard is aimed at:

*  Alleviating potential risks to the delivery of fair outcomes to policyholders inherent in the cell captive insurance business model;

*  Addressing conduct related supervisory and oversight challenges emanating from the proliferation of third party cell captive arrangements with non-mandated intermediaries (NMIs) by ensuring that products offered through cell structures are suitably tailored and offer consistently fair value to policyholders;

* Protecting policyholders by ensuring that potential or actual conflicts of interest that arise in instances where the cell owner is an NMI are properly mitigated and managed;

* Preventing possible regulatory arbitrage arising from the fact that NMIs who are cell owners are entitled to earn commission for the selling of policies and share in underwriting profits without necessarily having a material interest or role to play in the technical underwriting functions of the business, unlike Underwriting Managers who are entitled to a share in underwriting profits but are prohibited from earning commission for the selling of policies; and

* Recognising the significant role to be played by third party cell captive insurers in promoting the transformation of the insurance sector in instances where it can be shown that a proposed cell structure is intended to serve as an incubation hub for an emerging insurer.

FSCA Website

The following documents are available on the FSCA website www.fsca.co.za under the accordion “Draft Conduct Standard-Cell captive insurance business in relation to third party risks” on the Insurance page (Home > Regulatory Frameworks > Documents for Consultation > Insurance):

- Draft Conduct Standard on Cell captive insurance business
- Statement supporting the draft conduct standard
- Comments template

Comments on the draft Conduct Standard is invited from all interested stakeholders and must be submitted in writing in the required format on or before 31 August 2018 to the Financial Sector Conduct Authority at INS.CellCaptiveConductstandard@FSCA.co.za.