The fair treatment of customers… COFI

Munich Re recently hosted a Life Claims and Underwriting Seminar where key topics including the fair treatment of customers and the current regulatory framework and insurance were discussed.

Perception of insurance

Having conducted a survey, Advocate Nonduduzo Hadebe, Compliance Officer at Munich Re, shared some responses of people’s perception of insurance.

One individual said, “They guarantee you a pay-out when they want you to sign up and promise you peace of mind. When it’s time to pay, you are by yourself.”

Another commented, “For me it’s a good service but I think there’s a certain population which does not have access to it, and for me that’s a problem.” While another stated, “It’s a good thing to have but sometimes the customer service is bad.”

“Insurance is actually one of the smartest business concepts ever developed. Think about what it does for people: when times are tough, they can rely on the insurance industry to be there for them. When an individual experiences the death of a loved one, when an individual has been hijacked with the car he or she just bought two days ago, when he or she has been retrenched; insurance will be there for this individual. Why then, is insurance seen as a scam, when it is there to do so much good?” questioned Hadebe.

“Some current practices and reasons for this is because there is misselling. Selling credit life insurance, for example, for loss of employment to pensioners has high unnecessary fees. Charging warranty fees, for example, even though an item already comes with its own warranty. There are non-transparent structures, early withdrawal penalties on investment products, sales, commission, speed of resolution issues and so much more,” added Hadebe.

The regulatory landscape

However, Hadebe says there are changes ahead. “In the future, the conduct aspect of the financial regulatory landscape will be regulated by the COFI Act.”

“The purpose of the Bill is to promote the fair treatment and protection of financial customers by financial institutions, support transparent and efficient financial markets, promote innovation and the development of and investment in innovative technologies, processes and practices. It will build trust and confidence in the financial sector and, promote sustainable competition in the provision of financial products and financial services. This includes financial inclusion; promoting the transformation of the financial sector,” said Hadebe.

“The Regulator is trying to re-insert ethics. Focus is on the spirit of the law as opposed to the letter of the law. The conduct seeks to shift from policies, compliance and controls to variables such as character, culture and behavior. It avoids a tick-box approach to compliance towards an outcomes focused approach,” she added.

“It is hoped that a focus on character, culture and conduct will lead to the fair treatment of customers. If the right people operate in the right culture their conduct will be aimed at the fair treatment of customers. They will treat people in a way they wish to be treated themselves,” emphasised Hadebe.

“As it stands currently, conduct requirements for the South African financial sector are currently spread across 13 different pieces of legislation. Some requirements are highly prescriptive in terms of how compliance should be demonstrated, while others are less so. Some financial institutions are required to comply with more than others, even if the nature of the business they perform is similar. In some instances, different requirements are set on different financial institutions to try and achieve similar outcomes,” continued Hadebe.

CoFI and TCF are binding

“CoFI embeds the Treating Customers Fairly (TCF) outcomes, which means they will be binding. Fair treatment should be  central to the firm culture, products should actually meet needs of consumers. Suitable advice should be provided, which takes into account the circumstances of consumers. Performance expectations should be met, and consumers should not face unreasonable post-sale barriers imposed by firms to change products, switch providers, submit a claim or make a complaint,” said Hadebe.

Consumers, Hadebe emphasised, should be provided with clear information and kept appropriately informed before, during and after the point of sale i.e. throughout the products/service life cycle.

“TCF is not about creating satisfied consumers at all costs. A satisfied consumer can still be treated unfairly and not know that he/she was treated unfairly. TCF does not absolve consumers from making decisions and taking responsibility for such decisions -consumers still have a responsibility to know what they are getting into and to take responsibility for their decisions. It also does not mean that all companies must do business in an identical manner - as long as business is done fairly and transparently, TCF requirements will be met,” said Hadebe.

Can you afford to not comply? “No, because there are administrative fines and penalties; business practices can be declared undesirable; suspension or withdrawal of regulatory licenses; termination or withdrawal of the approval of certain individuals to act in certain capacities; compensation or any other redress,” concluded Hadebe.

Editor’s Thoughts:
Hadebe mentioned that insurers should see law changes as an opportunity and not a threat. “The COFI changes can be seen as an opportunity to reimagine customer relationships. Let’s remember why this business of insurance was started in the first place.” Do you agree? If you have any questions please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za.