A wake-up call
Duncan Buchanan, vice chairman of Safsia, says on the short term front the international pressures from Spitzer rulings, will have significant impacts, although South Africa is slightly ahead of the international game with FAIS regulations.
New York attorney General Elliot Spitzer and his effect on the international short term insurance sector, in terms of disclosure, transparency and the management of conflict of interest are the key issues, shouldnt be underestimated.
Its not just about compliance. Its about total transparency, the correct management of conflict of interest and complete disclosure.
The big international players like AON, AIG, Marsh, Willis were all in the game, and the broker business models were changed significantly, and thankfully everyone (the insurance sector in the USA) took a responsible approach which if this wasnt the case, may well have led to Enron-like situations.
It was about income earning models, conflict of interest, cross shareholding with service providers, and the like.
Declaration of fees at all levels of the retail chain must be disclosed, and contingent fees are a thing of the past. All earnings are client driven and understood.
The result of which will be increased regulation and sound corporate governance. He says that the local sector is ahead of the game, with the introduction of FAIS.
But we still need to act ethically, and transparently, and start with something small like a gifts policy, and the limit on the value of the gifts that staff can accept.
The same would be true for product providers and the continued practice of offshore conferences and site visits.
He did cite one European country that has outlawed commission between a product provider and the broker. The broker gets paid by the client. He warned that this could eventually spill over to other European countries, and eventually spill over to South Africa.
He did mention that the FSB seems to have put the deregulation of short term commission on the back-burner, and it appears that the FSB is waiting for the industry to develop an approach.
