Momoniat presents erratic view of the industry at the Sun City Conference
Regulation change has become a fact of life in the insurance industry. The Financial Services Board (FSB), along with National Treasury (Treasury), have been tasked by government to get the South African financial services industry up to date with international regulatory reform.
Some sectors of the insurance industry are looking at regulation with a glass half empty approach. These sectors are silently hoping that industry regulators are not going to create an untenable situation within the industry.
A stern warning
The speech delivered by Ismail Momoniat, Head of Tax and Financial Sector Policy Division at National Treasury, on 28 July – the first day of the Insurance Conference 2014 - was in many ways balanced, and he gave an insight into why Treasury is regulating the industry and what the end game after regulation will be. “What is the objective of regulating the financial sector? The aim is to make this sector safer and to help it serve customers better. It is not an end objective but a continual objective,” said Momoniat.
While this is reassuring, the industry might not feel the same. Many within the industry feel that they conduct themselves in a fair and effective way and that their clients are indeed at the heart of their business. However, Momoniat sent out a stern warning to move away from the futile debate of whether or not regulation should be enforced.
“Firstly it is constitutional, therefore those who say no to regulation may go to the constitutional court, but they should do so at their own expense, and not at the expense of the industry. Secondly and more importantly, the industry will not function appropriately if government does not enforce regulation and this will result in the sector being entirely free from all law,” said Momoniat.
He asked the audience to imagine what it would be like with a totally free market for insurance. “People would then be able to sell insurance products to anybody and many selling insurance would not be able to deliver on their promises. This would result in consumers not trusting any of the insurers and the good insurers would then suffer because of the rotten ones,” said Momoniat. He even went as far as saying that some insurers do not deserve to sell products to the public. This was probably judged by the number and the nature of the determinations handed down by the Financial Advisory and Intermediary Services (FAIS) Ombudsman as well as the Ombudsman for Short-Term Insurance (Osti).
“Do insurers know who their customers are and what their obligations are towards them? Treasury is concerned about poor risk management practices, weak internal controls and the lack of policyholder data. Why is there a need for Binder Regulations if insurers are in control? Insurers need to demonstrate greater ownership of policyholder data and improve risk management practices. Failure to address these concerns means that there is no firm commitment to truly implement Treating Customer Fairly (TCF) initiatives,” said Momoniat.
Setting ambitious targets
One of the objectives of regulation is to widen the participation of all people into the financial services industry, from the highest income earner to the lowest income earners. While this is a noble outcome, can it be achieved?
“Government wants to promote more access and financial inclusion in the market. Are the current products appropriate for the lower income market?” asked Momoniat.
The answer to this question lies in the answer to another key question. Is it profitable for brokers and advisers to participate in the lower income market? Currently, the answer is no. And although this is a market where advice is critical, it is just not viable from an intermediated perspective. Direct players have a role to play, and they are doing it, but advice lacks and insurers playing in this field should engage much more with the lower market in terms of educational drives to address issues completely unknown to this market.
The voice of calm
It is usually the FSB who are presenting these talks and incurring the wrath of the industry. This time, it was the FSB who were the voice of reason. After a rather pensive response to Momoniat’s comments by the audience, Jonathan Dixon, Deputy Executive Officer for Insurance at the FSB, pointed out that the FSB imposing regulation on the industry was based on shifting the industry away from a reactive to a predictive mind set.
“We need to be risk appropriate. Regulation needs to be comprehensive and consistent. By 2016, Twin Peaks, Solvency Asset Management (SAM), TCF and the Retail Distribution Review (RDR) regulations will all be implemented. Customers can have confidence and trust that they are dealing with firms that will keep promises and treat them fairly,” said Dixon.
Editor’s Thoughts:
Overall, there was a mixed reaction to Momoniat’s talk. A number of people at the conference felt that he gave a balanced view of what the industry looks like at the moment. Others said that he made big accusations regarding the conduct of players in the market. What are your thoughts? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
Comments