How not to get buy-in from the insurance sector
In life, nothing is certain but death and taxes… In financial services, nothing is certain but regulation and compliance! Regulation and its likely impact on the domestic short-term insurance industry featured strongly at The Insurance Conference 2012, an
The annual insurance industry pilgrimage to Sun City afforded representatives from National Treasury and the Financial Services Board (FSB) an opportunity to put forward the latest regulatory developments to the gathered insurers, underwriters and insurance brokers. Hot topics included Solvency Assessment and Management (SAM), Treating Customers Fairly (TCF) and the draft Insurance Laws Amendment Bill, to name a few... The conference got off to a flying start thanks to a top-notch opening-session presentation by Joe Plumeri, Chairman and Chief Executive of Willis Group Holdings Plc. And although his upbeat assessment fuelled delegates through most of the “heavy” conference program, it was not enough to endure the scathing National Treasury address on day two.
Working together we can do more...
The Insurance Conference is a platform for open and constructive debate on issues affecting all stakeholders in the insurance industry. Insurers – represented by product providers and industry bodies – used the event to raise awareness about the many challenges arising from new regulation, while the regulators chose to update attendees on industry progress toward specific regimes as well as to reinforce the need for financial services regulation. This “to and fro” interaction between industry and regulator exhibited in the constructive post-lunch session of 12 June, when Ian Marshall’s (of the FSB) Introduction of SAM to the SA Market was followed by Nico Esterhuyzen’s (of SAIA) The Potential Impact of SAM on Niche and Small Insurers.
The difference between insurance company and regulatory concerns were expanded upon on Tuesday, 13 June, with FSB presentations on the Insurance Laws Amendment Bill (by Jonathan Dixon) and Treating Customers Fairly (Leanne Jackson) balanced by an Alexander Forbes’ view (by Butši Tladi) titled: How Does the Demarcation between Healthcare and Insurance Impact the Consumer? Dixon updated the audience on the reasoning behind and progress towards the ILAB draft while Jackson provided an honest assessment of the short-term industry’s progress towards TCF compliance.
No fairytale ending
Just after 11am on the second day of the conference the mood soured. Ismail Momoniat of National Treasury took to the stage to discuss The Impact of the Financial Services Regulatory Framework of South Africa’s Inclusion in the G20. What started as an impressive discourse on the so-called Twin Peaks regulatory model and the need for operational independence of market supervisors deteriorated into a no-holds-bars attack on the short-term insurance industry. He tore into industry executives, criticised insurers for their lack of innovation and transformation and took a roundhouse kick at the incoming Short-term Ombudsman for good measure!
His presentation drifted from the gross generalisation: “If you look at the short-term insurance market, the market conduct practices are poor, and in many cases frankly quite disgraceful” to a blunt dismissal of the industry’s call for exemption from the Consumer Protection Act: “When we go to Parliament it is very hard to argue why the insurance sector should be exempt [from CPA] – does it deserve to be exempt – the way it behaves sometimes it certainly does not deserve it”. He also found cause to castigate the industry for its approach to TCF, a regulation that has yet to be drafted. “I believe that the short-term industry is well behind the curve in their focus on fair treatment of customers,” he observed, before concluding that the short-term insurance industry had failed to transform to reflect the South African reality.
Momoniat expressed unhappiness with the short-term industry’s lobbying of government for compulsory third party motor insurance too, saying that the industry needed to provide innovative and cheaper solutions to ensure it penetrated a greater percentage of the motor pool. “To the extent that the costs are not transparent, I do not believe the industry deserves government saying by decree that you have to carry insurance with the licence,” he said.
Not a platform for debate
In the absence of a debate on the topic the best the insurers could muster was a brief opening riposte from Ian Kirk, CEO of short-term insurer Santam. On the topic of sustainable motor insurance he observed: “If we do not understand the risk on the ground and come up with inappropriate products – inappropriately priced – we will end up as failed insurers. It is important to see innovation and product development in terms of that balance.” He warned that the regulators tasked with prudential supervision had to appreciate that the insurance industry would not be sustainable were it forced to re-price inefficiency into a declining pool of policyholders.
Momoniat’s attack extended to the Office of the Ombudsman for Short-term Insurance (OSTI). He said that the OSTI and other industry Ombudsman schemes were not sufficiently independent. Ombudsman Dennis Jooste, who spoke in the final session after lunch, had no option but to defend his position. “Right at the outset let me stress that the OSTI is part and parcel of the alternative dispute resolution process, we are totally neutral and independent, notwithstanding there may be some perceptions to the contrary,” he said.
To say the mood during the lunch break was tense is an understatement. There was an air of disbelief from the executive of the industry bodies and insurers we chatted to. It was felt that the National Treasury onslaught was totally uncalled for given the numerous platforms at which the regulators and industry regularly thrash things out and the consistent progress made by the industry to meet whatever regulatory challenges are thrown its way.
Editor’s thoughts: The insurance industry depends on input from all its stakeholders to grow to better serve the insurance consumer. Some of the observations (or should we say accusations) levelled by National Treasury at insurers during The Insurance Conference 2012 lacked substance, and seemed contrary to the spirit of open, transparent and constructive debate. Do you think the National Treasury criticisms, directed largely at short-term insurers, are fair? Add your comment below, or send it to [email protected]
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