Creating an award winning industry

The global economic meltdown of 2008 has increased government’s urgency to implement financial reforms to minimise chances of it happening again. All over the world, industry after industry has come under heightened regulatory scrutiny.

According to Jacques du Preez, Head of Corporate Actuarial at Mutual & Federal, the local short-term insurance industry has not been spared this scrutiny.

Regulation positivity

“Some of the major pieces of reforms currently being implemented in our industry relate to Treating Customers Fairly (TCF), the Retail Distribution Review (RDR), Binder Regulations, Solvency Adequacy Management (SAM) and others. The roll-out of regulation is reflective of the regulator’s efforts to place customer-centricity at the heart of the industry,” says Du Preez.

The majority of players in the industry have welcomed these new regulations as they recognise the regulations are not only about ensuring the stability of the financial services industry, but will also go a long way in improving the public image of the shortterm insurance industry. Du Preez says, “All companies should welcome these moves as they need to understand they are about ensuring that the end-customer is being treated fairly every step of the way throughout their short-term insurance experience.”

Breaking old mind-sets

In the past, the industry might have been casual in how it related to it’s customers, but that is no longer possible or desirable.

There may have been greater opportunities for market players to devise elaborate fee-generating schemes which placed undue financial burdens on customers, but the current regulatory reforms are helping the industry move away from that.

Sitting down and engaging with clients is an essential part of any insurer’s business. Customers need to understand risk and the role it plays in premium calculation. Brokers can also advise clients on the steps they can take to reduce their risk profile.

Tackling challenges

The industry, however, faces several challenges in attempting to ensure adequate implementation of the changing rules and regulations.

The biggest challenge relates to the costs associated with embedding these changes. “The embedding of these regulatory reforms has a great impact across the process, people and technology aspects of the insurance industry, and will take time to achieve,” Du Preez adds.

A further challenge facing the industry is the current shortage of specialised skills required to assess, manage and implement the complex business changes resulting from the sheer volume of regulatory change being proposed.

Looking to the future

In future, short-term insurers will have to deal with two regulators, instead of one. The Twin-Peaks regulation will see both the Financial Services Board (FSB) and the South African Reserve Bank exercising regulatory oversight over the industry.

Under the revised regime, the FSB will focus primarily on the supervision of market conduct risk across the insurance industry, while the Reserve Bank will exercise financial or prudential oversight over the industry. This will increase the administrative and reporting obligations on companies, and may have a further impact on the costs associated with regulatory compliance.

According to Du Preez, these challenges are not insurmountable and major insurers are working hard to overcome them, in order to lay the foundation for the future growth of the industry.

An important aspect of embedding these regulations successfully is leadership, Du Preez explains. Companies whose Chief Executive Officer’s (CEO’s) set the tone right from the top; and are aware of risk management and control, will make this part of the company’s business operations, culture and thinking.

Du Preez concluded by saying, “Regulation is about working together as an industry to deliver a superior service to customers. Customers need to look at the industry as one they can trust to protect them when they feel most vulnerable. It is for these reasons that within major insurers, customer-centricity and risk management are critical components of business decision making.”