Is this even realistic?
With the commencement of the new Insurance Act expected 1 July 2018, how will this affect insurers and the insurance industry as a whole?
FAnews spoke to a few insurers to get their feedback on this and the potential challenges that lay ahead.
The legal framework
According to Mohammed Aslam Patel, Head: Regulatory Risk & Compliance at Old Mutual Insure, the recently passed Insurance Act 2018 provides the legal framework for the prudential and supervision of insurance business; promotes the maintenance of a fair, safe and stable insurance market; introduces a legal framework for micro-insurance to promote financial inclusion and replaces certain parts of the Long Term Insurance Act (LTIA), 1998, and the Short Term Insurance Act (STIA), 1998.
The act, he says, aims to facilitate the monitoring and the preservation of the safety and soundness of insurers, enhance the protection of policyholders and potential policyholders, increase access to insurance for all South Africans, promote transformation of the insurance sector and contribute to the stability of the financial system in general. The act forms the basis of the twin peaks model for the regulation of the financial sector. The Conduct of Financial Institutions (COFI) bill will provide the market conduct basis and the Insurance Act together with its Prudential Standards basis of the twin peaks regulator model once effective.
The reality of it all
"The Insurance Act should not be read or interpreted in isolation when establishing the impact it will have on the insurance industry. It is only one part of the complex changes to insurance regulations and other regulatory instruments introduced during the past few years of which the majority are expected to come into operation during 2018, if not already," says Jackie Drotsky, Licenced Compliance Officer at Momentum Consult.
"The Insurance Act is the final measure for insurers to address the regulatory remediation necessitated by the 2008 financial crisis which depressed markets world-wide. The regulatory implementation took place over a period of years which started with the interim measures, followed by parallel runs, and now, through final implementation. As a result of this "phased" implementation, the final operational impact is not as significant as it may have been had the implementation been "a big bang" approach," said Patel.
"The reality is that the implementation will impact the ongoing viability of insurers should they fail to meet the financial soundness requirements. This will certainly create opportunities for insurers who are financially sound and able to absorb the risks underwritten by these insurers," continued Patel.
"It also creates an opportunity in the market for micro-insurance which introduces less stringent requirements to promote financial inclusion initiatives. This is a positive step towards providing South Africans with more affordable insurance that is accessed by the low-income population," said Patel.
Key challenges ahead
Patel says the key challenges facing insurers include:
• Re-licencing – Insurers will have to re-apply for the conversion of licences and meet the requirements of the Insurance Act including aspects such as transformational objectives;
• Changes in classes of business. The classes of business are more granular. This will have an impact on reporting and business systems;
• Governance and Operational Standards for insurers. The standards are slightly more onerous than current interim requirements;
• Insurers are required to make annual public disclosures of specific quantitative and qualitative information in order to give policyholders and market participants a clear view of their business activities, financial performance, financial soundness position, risk exposures and risk management as well as the governance framework;
• New requirements for Cell Captive and Reinsurance licenses; and
• Capital Add-ons now become a reality. It allows for capital that must be held for solvency purposes that the regulator may impose.
Drotsky says the major challenges which the insurance industry will face will be affected through:
• Policyholder Protection Rules (PPR)- provide for certain conduct of business related requirements that will be repealed from the LTIA and the STIA through Schedule 1 to the Insurance Act, once the latter Act commences, as these conduct requirements are better placed in subordinate legislation; and to provide for micro-insurance product standards by giving effect to the National Treasury's micro-insurance policy document released in July 2011;
• Amendment of the short term and long term regulations – aim to align the regulations with the Insurance Act and further strengthen policyholder protection;
• Prudential standards – covers financial soundness, governance and operational standards;
• Retail Distribution Review (RDR) – revolutionises how financial services companies offer advice and distribute products to customers;
• Twin Peaks – introduces a new prudential regulator located in the South African Reserve Bank (SARB) to ensure that consumers are offered more protection and make the financial services system more resilient;
• Protection of Personal Information Act (POPI) - regulates how customer data is managed; and
• Treating Customers Fairly (TCF) - ensures that all financial institutions adhere to the required customer treatment standards.
Navigate uncharted territories
"There is no doubt that the changes will bring about technological /system requirements, resource requirements, enhanced contracts management; administrative burdens, product innovation, more stringent underwriting measures, to name but just a few," continued Drotsky.
However, Drotsky concludes, as said by Malesela Maupa, Head of Insurer Relationships at FNB Insurance Brokers, "Given the unprecedented challenges and changes that continue to shape the global insurance industry, it is essential for insurers and brokers in South Africa to always remain prepared, be a step ahead and flexible enough to navigate uncharted territories."
Editor's Thoughts:
We must remember, as Drotsky said, the Act is only one part of the complex changes to insurance regulations. At the end of the day, regulatory reform is a deliberate attempt to further professionalise the industry. How can this be a bad thing for the industry? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.
