Is a firm hand needed?

Farzana Badat, Head of Department Regulatory Framework in the Regulatory Policy Division at the FSCA

Along with technology, regulation has been the major topic that has taken the industry by storm over the past two years. Insurers and intermediaries are trying to find their place in a world where technology and regulation are having an increasing impact on their daily lives.

Across the industry, insurers and intermediaries have said that they would embrace technology provided that it does not significantly impact the way that they do business. What is the Financial Sector Conduct Authority’s (FSCA) stance when it comes to regulating technology and technological platforms? 

The regulators view

From a practice standard point of view, the FSCA is a member of the International Association of Insurance Supervisors (IAIS). The IAIS has several initiatives currently in progress relating to the impact of technology on the insurance sector. 

One such initiative is the development of a position paper on the increasing use of technology in insurance and its potential impact on consumer outcomes. The FSCA has contributed to the development of this paper. 

Farzana Badat, Head of Department Regulatory Framework in the Regulatory Policy Division at the FSCA, points out that as with the rest of the financial services sector, developments in technology present significant opportunities for the insurance industry. This applies to insurers and their clients. 

"Technology is an enabler for financial inclusion by offering innovative and flexible products and services, faster, cheaper and more convenient ways of doing business. Further, there is a greater customisation to individual customer needs, speed to market for providers and ease of switching for customers. There is also instant access to information to support decision-making and comparability, and a significant increase in customer choice," said Badat. 

From a regulatory point of view, it is important to remember that irrespective of the types of technologies being deployed by insurers and other providers, the primary consideration will be the impact that the adoption of these technologies could have on the delivery of fair outcomes for customers. The FSCA needs to ensure that its regulatory response to technological developments creates an appropriate balance between innovation and risk management to ensure good outcomes for customers. 

An important role player

One of the fears that intermediaries have is that technology will lead to disintermediation and that certain clients will find that they either no longer require intermediary services or that the services of the intermediary will be used on a less frequent basis. 

“The FSCA has consistently communicated, specifically through our retail distribution review engagements, that we are fully supportive of the need to ensure the sustainability of the intermediary sector. We recognise the significant value to customers of having a sustainable and vibrant landscape for the business of financial advice. We see the role of technology as an enabler to build and support such a landscape for intermediaries, particularly in light of the opportunities presented by technology to improve business efficiencies, reduce operational costs and enhance data capabilities,” said Badat. 

As good as gold

As the influence of technology grows, the role of data analytics becomes very important in the industry. If insurers and intermediaries can strike a right chord when it comes to this, they will gain invaluable insight into their customers. 

The FSCA supports this view and regards data analytics very highly. 

“The FSCA supports the use of data analytics to assist insurers to get better insights into their customers. This will enable them to provide more appropriate and suitable products and solutions to their clients. Data analytics is also a key component underpinning our approach to risk based market conduct supervision, reflected in our introduction of detailed reporting on specific conduct risk indicators through the insurance conduct of business returns which have been in place since December 2016,” said Badat. 

She added that from a customer outcomes perspective, the FSCA would expect the use of data for analytics purposes to be done in a responsible manner with due consideration being given to applicable privacy and security obligations in respect of such data. This must also comply with the Protection of Private Information (POPI) Act which will be provided in the future. 

Editor’s Thoughts:
Technology is something that can both benefit and challenge insurers. Embracing it will be key to success in the future of the industry. It will be interesting to see whether the FSCA will play a more prominent role when it comes to the future of regulating technology. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.