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De-risking the premium collection process

09 April 2018 Myra Knoesen
Barry Scott, Executive Head of Fulcrum Delta

Barry Scott, Executive Head of Fulcrum Delta

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

According to the draft, the framework supports the premium collection for the entire insurance market and compels insurers to have appropriate oversight by independent intermediaries collecting premiums.

Removing the need for IGF cover

With the above in mind, The Fulcrum Group sent out a press release based on a solution to premium collections. Considering systems are changing and collections models are evolving, we thought our readers might find this interesting to read.

The Fulcrum Group has launched a new product called CollectDirect, which deposits premium collections directly into the respective insurer’s bank account. The system reduces risks for insurers and is fully compliant with the proposed amendments to regulations pertaining to the Short Term Insurance Act (STIA) that will put a stop to Sections 45 Intermediaries Guarantee Facility (IGF) guarantees from a future date to be decided.

“Section 45 of the Act enables premium collection to take place through an authorised financial services provider such as Fulcrum Collections. The way that it works currently is that we receive debit order instructions from each of our brokers and collect the premium into a Fulcrum bank account. Our IGF guarantee covers the funds sitting in that bank account. We can hold the premium until the 15th of the following month before paying it over to the insurer and paying the brokers their commission,” says Barry Scott, Executive Head of Fulcrum Delta

The perceived risk

An issue with this method of premium collection is the perceived risk insurers have when the IGF guarantee is insufficient to cover the outstanding premiums. This risk will be exacerbated when the IGF guarantees are no longer available.

“Under the Solvency Assessment and Management (SAM) environment this risk has to be taken into account on insurer balance sheets. So, if the IGF guarantee is not big enough to cover the outstanding premium, insurers have to account for that risk. Fulcrum recognised the need to find an innovative solution to mitigate this perceived risk, especially given that the IGF guarantees will eventually disappear.”

Managing this risk better

Fulcrum has been working on CollectDirect since 2015, when the company was approached by one of the large insurers to come up with a way to help them manage this risk better.

“For the period that we were holding their premium, the insurer had a hole in their business not covered by a guarantee. So, they asked us to come up with a solution - either put guarantees in place for the full collections amount or come up with some other mitigation plan,” says Scott.

The Fulcrum team put their heads together and came up with the CollectDirect solution, which was piloted very successfully last year with a small group of brokers.

“We started collecting directly into the insurer's account, and everything went really smoothly. Fulcrum still manages the whole process; we do the reconciliations, the unpaid reconciliations, deal with all the queries, etc. It is just a simple switch in our process that channels the premium directly into the insurer bank account,” says Scott.

“We load transactions and broker commission payways. We still deal with unpaids and other management issues. The only difference in process is that the insurer has to authorise the transactions before they are released,” continued Scott.

For the insurer, Fulcrum CollectDirect has completely derisked the process. Whereas previously, the insurer would have premium sitting with Fulcrum for up to 45 days, now it sits in their bank account from day one. The insurer pays Fulcrum a fee to manage this process.

Imperative that models change

“Since the announcement of the amendments to the Act we have already signed four more major insurers onto CollectDirect. We anticipate that all collections in the insurance environment will be done in this way before the end of 2018. Insurance system providers are busy getting their houses in order in anticipation of the new methodology. They are updating their platforms to be CollectDirect compliant. In fact, Fulcrum’s own system – Fulcrum Flexi – has already been compliant since early 2017,” says Scott.

Scott says that by June, most major policy management systems will have been modified to run CollectDirect. “Collect Direct has been designed to be flexible so that we are able to accommodate the different systems and types of relationships that insurers have with brokers. Whatever insurer model you have with your brokers, we can accommodate it,” says Scott.

Brokers can expect a communication from Fulcrum and insurers in this regard in the very near future. “We see CollectDirect as a partnership between Fulcrum, insurers and brokers. It is imperative that the outsourced collections model changes, and CollectDirect provides the perfect solution,” concluded Scott.

Editor’s Thoughts:
The environment is going to change. As Scott pointed out, all collections in the insurance environment will be done in a ‘CollectDirect’ way before the end of 2018. Do you believe services and products like this will simplify and ease processes? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.

Comments

Added by Barry Scott, 12 Apr 2018
@Leigh - Fulcrum performs the premium reconciliation and communicates this to the insurer and broker concerned. We do not, and never will, cancel any policy. This remains the responsibility of the broker and/or insurer.

@Yeah - Greater than 80% of debit orders in the Fulcrum Collections are generated by three systems, Fulcrum Flexi, CIMS, and Tial. Flexi is already compliant with the CollectDirect requirements, and we have an undertaking from CIMS and Tial management that these systems will be compliant with CollectDirect by the end of June. That will make the large majority of our collections ready to be processed using CollectDirect by the end of June. My statement is therefore correct. As regards insurer response, we have already spoken to eight insurance companies. Two of these are already moving their collections onto CollectDirect, and all of the others have expressed interest in doing so.

@Cynical - Once a debit leave the policyholder account, it is transacted straight into the insurer bank account. The premium is therefore fully secure during the process. There is no period between leaving the policyholder account and entering the insurer bank account, this process is a direct bank-to-bank transaction. As regards suitability to only larger brokers, this is not the case. Fulcrum has already successfully implemented CollectDirect with smaller brokers, without any problems. From a broker perspective, the collection process the follow is exactly the same, whether they are using the current Fulcrum Collections process, or our new CollectDirect process.
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Added by Leigh, 09 Apr 2018
A question for Fulcrum? If the insured's debit order fails are they mandated to cancel an insurance policy or does this remain the responsibility of the insurer? In the article it makes mention that Fulcrum manages the unpaid reconciliations but the article s silent on who takes responsibility for canceling the policy retroactively after the first failed debit or communicates this to the insured.
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Added by Yeah Wright, 09 Apr 2018
"Scott says that by June, most major policy management systems will have been modified to run CollectDirect."
And just what in the new Regulations has encouraged Mr Scott to make such a sweeping statement? Having been involved in this environment for many years, I seriously doubt the system will be half as attractive to insurers as the article suggests.
The amendments will require insurers to be vigilant in who they appoint as collecting intermediaries - and the need for any guarantee is obviously regarded as minimal by the Conduct Authority - otherwise why do away with IGF?
I know a marketing effort when I see one . . .
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Added by Cynical Simon, 09 Apr 2018
The proposed fulcrum solution is quieton the period between the money leaving the insured account or Safe[when it is cash] until it is received by another banking institution.
I am perturbed that this can be advocated as a complete solution ,completely de-risking the process. It very much looks like a scheme that will suite the modus operandi of the big broker but will severely limit the ability of the small broker , to execute it's service to clients..
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