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Where does the smaller broker fit in?

23 April 2018Myra Knoesen
Charl Cilliers, Chief Executive Officer of Insure Group Managers

Charl Cilliers, Chief Executive Officer of Insure Group Managers

Diane Burns, Executive Director at Insure Group Managers

Diane Burns, Executive Director at Insure Group Managers

National Treasury recently published draft regulations regarding the collection of premiums by intermediaries.

Committed to participate

FAnews spoke to Insure Group Managers about the proposed changes to the insurance regulations issued by the regulator and of specific interest to them, is the section dealing with the collection of premiums by intermediaries.

The architecture of the on-line Xcelerate premium handling system, for example, deployed by Insure Group toward the end of 2014 was designed in such a way that a ‘triangular’ relationship can be configured, based on specific roles and permissions between Insure Group as the collections agency, the collections client and third parties such as Policy System Providers or insurers. Therefore, Insure Group can collect premiums on an outsourced basis directly into the bank account of an insurer should this be a requirement. Currently such a requirement is not part of the published proposed changes.

The ideal range of solutions

Charl Cilliers, Chief Executive Officer of Insure Group Managers, believes it is necessary to first allow the industry consultation process with the regulator to be completed to allow all the affected role players to give sufficient input to the proposed changes, and the regulator to then make final determinations, before taking any actions.

“It may not be that the outsourcing option to collect directly into the bank account of the insurer is the best option as there may be better alternatives suited to the needs of brokers and insurers while providing the same or a better level of guarantee,” he said.

Cilliers says that they are fully aware of the dilemma that insurers are facing, in terms of the regulatory risk during the maximum 45 days, that collection agencies and other authorised intermediaries can hold premiums in the current process. Even more so in instances where the current Intermediaries Guarantee Facility (IGF) capacity model is insufficient to cover outstanding premiums.

He agrees that this risk should be mitigated for the insurer, especially should the IGF not be available any longer as is proposed. “We, however, need to approach the solution holistically and in a progressive way going forward. This means ensuring that there are tailored options available not only to mitigate this risk for the insurer, but to also take into account the business requirements and relationship impact on the broker and the insureds. One should also consider the technical demands that the range of Policy Admin System Providers in the market may experience to conform to, in order to get to the ideal range of solutions and efficiencies”.

The decision to discontinue IGF

It would seem from recent observations made in the media and public platforms that another driver behind the decision to possibly discontinue IGF guarantees are the difficulties and constraints for the IGF Ltd, a specially established insurer, which arise due to the implementation of Solvency Assessment and Management (SAM) regulations for all registered insurers.

“This is understandable. But the other side of the coin is that mitigation of prudential risk for insurers now simultaneously comes squarely into the frame under the overall proposed draft regulations,” says Diane Burns, Executive Director at Insure Group Managers.

Burns further explains that realistically, it is likely that securing alternative guarantees will be unattainable and/or non-viable for most intermediaries as these are very sophisticated instruments. However, she believes they have the potential to substantially underpin the widespread Insurer-Authorised Intermediary arrangements to be enhanced and “restructured” over time as envisaged by the regulatory rationale published.

Burns goes on to explain that, in terms of a bigger industry picture the removal of the IGF may pose a risk to Financial Service Providers (FSPs) and especially the smaller brokers. “Foreseeably, there may be imminent or future significant impacts on their ‘business as usual’ operability, a tangible negative impact on financial independence and impediments to their growth potential. Some of the posed market solutions being muted are unlikely to satisfy the business imperative of being fit for purpose,” she says.

Furthermore, a key imperative focus should be on customer centric technology interfaces to meet interaction expectations and avoid inconvenience for insureds. Therefore, with the IGF likely falling away a more prudential complexity arises for insurers. Burns believes that providing alternative forms of comfort and security will emerge as an important consideration among other contributing factors.

Careful consideration

“Insure Group is working very hard to ensure that such alternative guarantee and credentials will be available to benefit clients and insurers where required,” Burns said. 

Together with all other role players and stakeholders in the market, Insure Group has noted the company will make a range of recommendations and suggestions to the regulator by the determined deadline and will then allow the regulator to evaluate this crucial input, from the company and the market, in order make final determinations, before the group makes any changes to the current collections process.

“In its submission, Insure Group will urge the regulator to carefully consider all the implications as well as the implementation periods of finalised regulations. This would be wise given the scale of these essential intermediary services in the market. It would also curtail disruption as much as possible and allow sufficient time for collection intermediaries to guide and support the smaller brokers to make any transitions. In addition, the regulator should avoid following a “one size fits all approach” given the objective of aligning short term and long term legislative frameworks. This would be the best approach to recognize the seismic shifts associated with Twin Peaks in tandem with the new Insurance Act and its revised methodology of regulatory change proposals,” said Cilliers.

“With the flexibility of our technology and our vast and extensive experience over more than 25 years as an insurance premium collections agency, we are very confident that we will be able to accommodate any changes the regulator may determine in the final regulations and continue to serve our market with the same level of comfort, convenience and compliance as we currently do. And we will be able to do so working closely with the full range of Policy System Providers we currently work with as independent suppliers servicing our clients”, concluded Cilliers.

Editor’s Thoughts:
As Burns pointed out, the removal of the IGF may pose a risk to FSPs especially the smaller brokers. Do you believe there may be better alternatives suited to the needs of brokers and insurers while providing the same or a better level of guarantee? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za

Comments

Added by Lizelle, 23 Apr 2018
The Regulatory Board Committee of the FIA has been tasked to investigate a common market approach to the premium collection regimen in collaboration with SAIA. Please get in touch with us if you need any guidance or information on the matter.
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Added by Cynical Simon, 23 Apr 2018
In my most biased opinion the disbandoning of the IGF is tantamount to fixing something that is not broken. If anyone is interested I can give a rundown of what life was before the advent of the IGF and why the IGF was BROUGHT INTO EXISTENCE. The IGF gives structure to the insurer carrying the risk which is theirs anyway. If ever there was a successful venture , the IGF was it. Since it was formed it has been virtually claims free .
Which goes to show that the "risk" run by insurers are non existent.The problems this cause with SAM is probably deliberately blown out of proportion. The solution for this problem must be found by the FIA and not by commercial enterprises , however hounorable their intentions might be.
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