Jonathan Faurie, FAnews Journalist
One of the biggest challenges to have hit the insurance industry in 2013 has been the uncertainty regarding the Retail Distribution Review (RDR). The aim of RDR is to resolve certain challenges within the industry in order to create a fair and equitable industry which benefits the client, the broker/adviser and the product provider.
One of the aspects which RDR seeks to clarify is the remuneration of brokers/advisers. This has given many sleepless nights as indications are that commission will be banned in certain instances.
RDR is a necessity
While this undercurrent is concerning, there is a definite need for reform so that there is greater and more equitable participation in the industry. There are also instances where the Financial Services Board (FSB) will readily point out that RDR is a necessity. The FSB recently fined Sanlam and its affiliate, Channel Life, R3 000 000 for overpaying independent brokers.
The contravention relates to commission paid in respect of funeral policies and was in contravention of section 49 of the Long-term Insurance Act, No 52 of 1998 ("the LTI Act”) read with Regulation 3.4. In the FSB release they stated that Sanlam Developing Markets and Channel Life, during the period 1 November 2008 to 21 June 2013, remunerated intermediaries in excess of the maximum commission allowed.
Sanlam said that these payments were inflated due to a system design error and they take compliance very seriously and are committed to avoiding any future contraventions.
As mitigating circumstances, the Registrar considered that Sanlam Developing Markets and Channel Life fully co-operated with the investigation and have put measures in place to rectify the contravention in that it addressed all the compliance issues relating to the matter and amended its processes where required. The Registrar also considered that the contravention was as a result of a bona fide oversight in the design of the system.
Consequently, the Registrar agreed to penalties of R2 000 000 in respect of Sanlam Developing Markets and R1 000 000 in respect of Channel Life, which penalties were imposed by the Enforcement Committee.
Walk the line
If anything, legislation such as RDR and Treating Customers Fairly (TCF) will force companies to BREAK toe the line. But while TCF is due to be implemented from 1 January 2014, there is a seemingly long road ahead of the FSB before it can finalise the RDR framework.
Moonstone has reported that, in an address at the FSB's Insurance Regulatory Seminar on 31 October 2013, the FSB expanded on Phase 2 of the RDR, which proposes to deal with inherent conflicts of interest in the relationship between product providers and intermediaries.
This phase includes determining just what "independent” advice comprises of and there will be a further review of remuneration models.
Factors which will influence the local roll-out of the second phase include international developments such as those found in the UK and in Australia. Local interventions, and notably Treating Customers Fairly and the Twin Peaks model of regulation will be the final piece to the puzzle that the FSB hopes to put together.
Editor's Thoughts:
Hopefully RDR will clearly define processes whereby there are no grey areas when it comes to remuneration and it will also establish guidelines for systems and processes which would avoid system errors that would overpay brokers. One also wonders how the overpayment will affect the brokers that were overpaid - will Sanlam / Channel Life come knocking on their doors for a refund? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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Comments
Added by Dawn Ford, 24 Jan 2023Please, an contact number or email address please.????????????Regards Report Abuse
Moreover while we are at it, brokers are progressively villainised particularly by the public who has no idea of the effort, hours of work and constant learning to stay informed. Our industry is loosing valuable people which are increasingly replaced by incompetence or not at all. Will someone remind the public and the regulators for that matter, that brokers established and maintain the industry. Report Abuse
Have you considered just how the entire edifice of regulation and FSB micro-management of the industry that is now in place would be simplified, how extensively costs would be reduced and how massively barriers to entry for new intermediaries would be lowered, were commission regulation to be abandoned in its entirety? Think about how this would reduce the Binder complexity for a start, among so many other burdensome regulations.
Why do we persist with it when so many of the first world countries that we insist on following like lemmings have themselves dropped it?
In time of course, the regulators will see the wisdom of dropping these silly requirements, thereby greatly simplifying their own lives, reducing costs, opening up the industry to new entrants and allowing competition to do its work in keeping overall premiums down, no matter who earns what portion of it. Report Abuse
Wrong.
The finding makes no mention of funeral policies and in any event, commissions payable for funeral policies (assistance policies) are uncapped. Report Abuse