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Moonstone: Healthcare Advisor Changes

10 February 2009 Moonstone

We publish below an excerpt from our input to the Council for medical schemes on proposed amendments to the regulation of healthcare brokers. Most of this also applies to other disciplines of the financial services industry.

Why input from Moonstone?

We provide a range of services to the financial services industry, including FAIS compliance, licensing, training and information refining, and as such have a very strong interest in the continued wellbeing of our clients.

Necessity for advice

The essential function performed by a broker in the healthcare industry is emphasised by the background sketch provided in the discussion document:

In 2007, there were 41 open schemes and 218 registered benefit options in those schemes. There is little uniformity between these schemes and options in terms of what benefits they offer or how those benefits are structured, and they all come at different prices. It is therefore very difficult for consumers to find out for themselves what is on offer, compare value-for-money, and ascertain which schemes and benefit options best suit their health needs – and their pockets.

The key expectation of the consumer in seeking the services of a health broker is that the broker will provide unbiased and independent advice and assistance in the interests of the consumer.

The purchase of medical insurance is less of a grudge purchase than for instance short-term insurance, yet there was a decrease from 10% to 8% in the number of clients in 2008 according to the latest Finscope survey. One has to believe that an important reason for this was the decrease in the number of advisors servicing the public.

In the current economic climate the skills of a competent advisor is more critical than ever before.

Objective advice

Paragraph 38 of the discussion document states: A marketing agent of a medical scheme would obviously be required to provide truthful and factual information to the consumer about a product, but would not be expected to be impartial vis-à-vis other medical schemes.

This flies in the face of the FAIS requirement for appropriate and objective advice that enables the client to make an informed decision. We trust that the intended meaning of the sentence was not clearly conveyed, and that the CMS does not condone inaccurate advice.

Broker income

The drastic reduction in broker commission in 2004 led to a large reduction in the number of brokers active in the market. There was no noticeable reduction of premiums paid by the consumer despite what must have been a substantial reduction in commission payments – in fact, there was a huge increase in the cost of healthcare.

The capping of commission meant that the brokers had fallen way behind the increased cost of living in the past 5 years, and their numbers have dwindled over time. The impact of this was a marked decrease in service levels and quality of advice as brokers were unable to sustain the levels up to then with their reduced income.

The introduction of regulatory legislation like FAIS and FICA had additional and severe financial implications on the resources of advisors while reducing their productivity as a result of increased administrative requirements.

Further reductions, which we see as inevitable if the proposed changes are effected, will lead to a substantial further decrease in the number of healthcare brokers. This will be exacerbated by the current financial crisis.

The end result will be to the detriment of the consumer who is supposed to benefit from these proposals. One cannot expect the same output in terms of quality and quantity while the real income of those responsible for delivery move in the opposite direction to their business costs.

Conclusion

We have had insight into the input from the Joint Broker Forum and fully endorse the sentiments expressed therein, as well as the recommendations put forward.

The solution to the problems currently being experienced by the CMS does not lie so much in changing what is in place – it can more likely be found in stricter implementation of what is already to hand.
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