Broker evolution in a changing risk landscape
Intermediaries navigating South Africa’s complex insurance and investment landscape play a crucial role in strengthening the financial services sector. “We often find that our intermediary members lose sight of the significant value they bring to this industry on a daily basis; the expertise and the guidance your offer from an ongoing professional development perspective is absolutely critical,” said Lizelle van der Merwe, CEO of the Financial Intermediaries association of Southern Africa (FIA).
Interconnected dynamics
The FIA CEO was presenting to the Natsure Annual Partner Conference, held in Pretoria recently. The event was themed ‘Quantum Entanglement’ in recognition of the close relationships that exist between key industry stakeholders.
Your writer dived into Google for a quick explainer of the phrase, learning that it refers to a phenomenon in quantum mechanics where two or more particles become linked in such a way that their states are dependent on each other, no matter how far apart they are. And that, dear reader, is as good a description of the alignment between broker, client, and underwriter as one might find.
“There is an absolute interconnectivity between the broker, the intermediated market, and underwriters; the one cannot be without the other,” said Tersia Davey, Managing Director at Natsure, during her brief introduction to the FIA presentation. She commended the FIA for its ongoing commitment to the intermediary industry including representing brokers’ interests at regulators such as the Financial Sector Conduct Authority (FSCA).
There are countless external and internal factors affecting broker businesses. Broad themes include the state of the economy, locally and globally; the impact of financial sector regulation; and the unprecedented pace of technology and tech-backed innovation. “There is a lot happening in the broker space,” said Van der Merwe, who commented on a notable rise in merger and acquisition activity in the sector. Poor economic growth and the rising cost of compliance and technology are just some of the factors forcing brokerages to seek scale.
You know it’s not easy
Few appreciate how tough being a broker can be. The FIA CEO jokingly postured that she would rather go head-to-head with the Department of Health or Department of Labour than have to keep up with the insurance and investment product information that intermediaries had to contend with. “I have huge admiration for what brokers do; you have to digest reams of product information and then share this information with your clients in an understandable way,” she said.
The FIA is an integral part of the insurance industry. At latest count, the association represents around 1600 financial services providers (FSPs) and 12000 key individuals (KIs) and representatives. According to Van der Merwe, the demographics will surprise the naysayers who criticise the association as an ‘aged and male’ affair. A recent demographic survey of its membership revealed more women than men, and more members in the 20-to-40-year age band than in the 40-to-60-year range. “There are more women than men within the FIA, which is understandable given we are in a service-based industry,” the CEO said.
The association’s primary objective remains to promote the collective interests of advisory businesses with a broad range of stakeholders. Much of this work is done by members who volunteer to represent their advice disciplines on executive committees purposed towards discretionary investments; employee benefits; financial planning; healthcare; short-term insurance; education and training; and transformation. The FIA is also member of Business Unity South Africa (BUSA) and sits on the boards of the Insurance Sector Education and Training Authority (INSETA) and the Financial Sector Transformation Council (FSTC).
A multi-discipline advising environment
“Each of our committees consist of industry experts who make a collective contribution towards important discussions around policy advocacy efforts that impact our industry,” Van der Merwe said. She explained a key difference between brokers and insurers. The former, are front facing with the client, tasked with coming up with risk management and risk transfer solutions, whereas the latter develop the product to meet requirements so identified. This explain why brokers have long been praised for their invaluable contributions to insurance product development and innovation.
The presentation singled out rising compliance costs as “affecting the viability of advisory businesses” and warned that brokerages were struggling to cover operational costs through regulated commission alone. “The cost of advice is increasing, insurers’ expectations are increasing, and regulation remains a major barrier,” Van der Merwe said. One of the FIA’s roles is to expedite interaction between the regulators and industry experts, or put slightly differently, to give regulators wider access to industry knowledge.
The presenter explained that regulators’ assumptions about how regulated entities conducted business were often incorrect. “It is important for us to give them access to intermediaries so that they understand why certain things are done as they are,” the presenter said. She cited recent engagements around non-life insurance binders and premium collection, both activities the regulator had been keen to abolish in their entirety. In the latter case, the FIA stepped in to justify premium collections in the commercial and personal lines contexts.
Opening locked doors
Another plus for the association is its ability to facilitate high level discussions with government and lawmakers. Large, recognised financial services brands will struggle to get face-to-face meetings with government departments, whereas the FIA, as an organised community of advisory businesses, is able to get access.
Van der Merwe reminded the audience of the critical role that brokers play, saying that clients received higher levels of attention and care via the intermediated distribution channel than when going direct. Brokers have to balance the needs of multiple stakeholders within regulatory constraints. “You have to make decisions that are both in the interests of clients and in the interest of the sustainability of the industry … brokers are indispensable partners in risk mitigation,” the CEO said. In fact, brokers participate across the risk management function.
The risk landscape is evolving. Today’s broker has to advise his or her clients on complex new products and a growing number of exclusions and limitations introduced by their insurance and reinsurance partners. This means navigating the cover complexities under global themes like climate change and cyber liability. “We have seen insurers’ appetites for risk is decreasing, which is something we are very conscious about as an association,” Van der Merwe said. Each exclusion widens the protection gap that regulators are so concerned about.
Going beyond insurance only
To remain viable, brokers will have to expand their advice and solution set beyond insurance to alternative risk transfer (ART) mechanisms. On the advising front, brokers were encouraged to conduct clear, regular reassessment of risks to make sure that exponential changes across the broad spectrum of risks are factored into the design and structure of insurance programmes. You can maintain an edge by hiring the necessary skills and investing in emerging technologies.
“We believe that by blending human expertise with technology, brokers can enhance their value proposition, and offer clients a superior, personalised, data-driven solution,” Van der Merwe concluded. “The pure digital platforms that direct insurers offer can never replicate what you do as a broker.” She urged brokers to respond to today’s challenging markets using creativity and innovation.
Writer’s thoughts:
Brokers are vital partners in financial protection, risk management, and regulatory engagement. How do you balance client needs, industry sustainability, and regulatory demands without compromising your business? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.
