Where will we stand when the dust settles?
The issue of delayed regulatory reform has placed the industry in a position where it has been waiting in anticipation to see what it will have to deal with.
There have been many rumours and many sleepless nights; however, the time for the implementation of Twin Peaks is drawing near, which means that the long wait will be over.
One of the issues has been the Insurance Bill which the Financial Services Board (FSB) recently presented to the Parliamentary Standing Committee on Finance. From the outset it must be pointed out that these are recommendations and could change as the Bill is implemented.
Establishing context
Regarding background to the Bill, the FSB said that the Insurance Bill builds on the Twin Peaks model of financial regulation envisaged in the Financial Sector Regulation Bill (FSRB) in respect of prudential supervision.
Further, it provides a consolidated legal framework for the prudential supervision of insurers as envisaged in the FSRB.
The FSB also articulated a clear vision of what the Bill will achieve. According to the FSB, the bill will:
- Promote financial inclusion and insurance sector transformation; and
- Enhance safety and soundness of insurers through introducing a new Solvency Assessment and Management (SAM) regime.
Addressing a big issue
One of the biggest issues being discussed in South Africa is Radical Economic Transformation.
According to the FSB presentation to the Standing Committee, the term transformation of the insurance sector has been defined with reference to the Broad Based Black Economic Empowerment (B-BBEE) Act.
The objective of taking a specific stance on transformation is that this has been amended to include a specific reference to transformation of the insurance sector. According to the FSB, the section has been amended to require an applicant to have a clear plan to meet transformation objectives. The prudential authority (PA) must take into account public interest, which includes transformation, when considering a licence.
This will most probably apply to any new entity applying for a licence. However, it could also apply to existing licence holders. Whether the same rules will apply to new applicants and existing applicants needs to be established.
When questioned on the transformation issue, Jonathan Dixon – Deputy Executive Officer for Insurance of the FSB – said that The proposal moots the inclusion of a clear reference to transformation targets entrenched (and to be evolved over time) in the Financial Sector Code for Broad-Based Black Economic Empowerment in the Insurance Bill. An applicant on application to be licensed as an insurer will be required to demonstrate that it has a plan to meet its stated commitments in terms of transformation of the insurance sector. The Prudential Authority will also be empowered to consider transformation in the licensing process.
Breaking down barriers
One of the biggest concerns from the industry’s point of view is that with Regulatory Reform comes extra costs; and extra costs starts to create a barrier of entry which prevents new companies from entering the industry and establishing a lasting presence.
This also seems to be the concern of the FSB. In its presentation, the FSB said that there is a concern that the PA may direct a capital add-on if the risk profile of insurer or governance framework deviates from underlying Solvency Capital Requirement calculation. This may results in small black owned businesses being taken over by big insurers.
On the other hand, the FSB indicated that the industry cannot afford another Saxum situation. The FSB said that to ensure the financial soundness of the insurer so that promises to and claims of policyholders can be met, capital add-ons may be imposed.
However, this power is limited in the Bill to where the PA reasonably believes that:
- the risk profile of the insurer or the insurance group deviates significantly from the assumptions underlying the solvency capital requirement calculation or the group solvency capital requirement calculation; and
- the governance framework of an insurer or a controlling company deviates significantly from the requirements of this Act.
While the intentions of the FSB are noble, it cannot get into a situation where there are a set of rules for one set of insurers and another for a different set of insurers. Credibility and the moral high ground will be lost.
Editor’s Thoughts:
Once again, we are faced with a waiting game to see what rules are actually applied. The FSB says it has listened to the industry’s feedback and it has its best intentions at heart. The final Insurance Bill will be the FSB’s Rubicon; it will be the point of no return for insurers who flaunt the law or the FSB who may cause unintended barriers in the industry. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
Comments
It is a concerning factor that licenced and well regulated insurers are constantly being placed under the spotlight in terms of legislation.
FSB need to be more proactive in their approach overseeing unregulated elements selling funeral insurance and not to rely on insurers to be their eyes and ears since they arent independant.
Join and support FIRA to educate the public as an independant association www.fira.org.za Report Abuse
It is a concerning factor that licenced and well regulated insurers are constantly being placed under the spotlight in terms of legislation.
FSB need to be more proactive in their approach overseeing unregulated elements selling funeral insurance and not to rely on insurers to be their eyes and ears since they arent independant.
Join and support FIRA to educate the public as an independant association www.fira.org.za Report Abuse
It is a concerning factor that licenced and well regulated insurers are constantly being placed under the spotlight in terms of legislation.
FSB need to be more proactive in their approach overseeing unregulated elements selling funeral insurance and not to rely on insurers to be their eyes and ears since they arent independant.
Join and support FIRA to educate the public as an independant association www.fira.org.za Report Abuse
Report Abuse