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Adapt or fail

01 August 2014 Hilda Motsepe, Centriq Insurance

As insurance industry role players, most of us have come to terms with the local regulatory landscape reform to protect consumers, provide market stability and promote sound risk management practices.

The question that many people raise, however, is whether the very instruments that were developed to help sustain the industry and protect consumers is becoming a barrier for the industry’s development and growth, especially for small to medium industry role players.

Adapt or die

With a marked increase in costs and time spent on meeting compliance requirements, concerns have been raised that we will see smaller insurers and brokers consolidating to recover not only from the economy, but also from the regulatory pressures of the past few years.

With that said, one cannot deny the everyday challenges that these role players have to address to maintain their position in the market place. Even in effective economies, these challenges include limitations in terms of market access, skills, training, IT systems as well as operational and administration costs.

As such, the timing of the new industry regulation as well as the manner in which these are phased in, regulated and monitored is extremely important. Failure to do so puts tremendous strain on smaller players in the market.

Potential loss of income because of the time role players spend on meeting new regulatory standards, instead of sourcing and securing new business, is a reality one cannot turn a blind eye towards.

Keep moving on

A recent report released by PricewaterhouseCoopers (PWC) entitled Insurance Finance and Effectiveness, states that the burden that finance and reporting teams of insurance firms feel as a result of mounting regulatory requirements is expected to increase with the implementation of, amongst others, the following regulation:

- International Financial Reporting Standards (IFRS) 4 phase II
- The Foreign Account Tax Compliance Act (FATCA)
- Retail Distribution Review (RDR), and
- Solvency Assessment and Management (SAM), particularly around Pillar III

The report goes as far as to say that we can expect larger insurers to increase their reporting resources by as many as ten times because of SAM alone.

We will therefore continue to see an increasing demand for experienced compliance officers across the insurance industry to monitor relevant risks. The reason for this is that more companies need to hire business compliance officers to assist them with the actual implementation of day to day compliance related challenges over and above the compliance function, which purely monitors the business risks and acts more as a control function.

Binder Regulations into focus

Binder Regulations will be another strong focus point for 2014 as we anticipate the Financial Services Board (FSB) to release benchmark guidelines on what they regard as reasonable binder fees. In light of this, insurers may again find themselves reviewing their contracts with binder holders to ensure that these contracts align with the latest guidelines.

In addition to the above, insurers and brokers can expect Treating Customers Fairly (TCF) and the Protection of Personal Information (POPI) Act to have a major impact on systems and processes which have to be aligned with the relevant requirements.

Spreading the risk

Insurers will continue to push out stringent requirements that brokers need to comply with concerning the legislation mentioned above, including the Financial Advisory and Intermediary Services Act (FAIS), as they are under regulatory pressure to take accountability for the conduct of the intermediaries they enter into business relationships with.

While we will have to wait and see if regulatory reform does indeed achieve the desired effect, the fact of the matter remains that insurers and brokers have to conform and prepare for all the changes ahead.

Overall, those of us who adapt are most likely the ones who are going to succeed.

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