Conquer the industry as the Captain of your RDR ship

02 February 2015 Elvin de Kock, Zurich South Africa

Regulation has been the buzzword in the industry over the past few years. It is driving significant change and will define the very essence of the industry in the future. However, is the industry preparing itself in the right way for the impacts of all these changes? “To make sure you are better prepared for what is about to change, we will be focusing on compliance and regulatory matters in each edition of the FAnews this year,” says Elvin de Kock, Chief Risk Officer of Zurich South Africa.

The Financial Services Board (FSB) recently published the Retail Distribution Review (RDR) White Paper with the proposed stipulations for industry consultation. This article will cover what we can expect from the new framework and how it could potentially impact the short-term insurance industry and brokers in particular.

Working from nine to five

Following on from its implementation in the UK, RDR will soon make its way to South Africa. One of the biggest changes envisaged is the capping of broker fees, and the concept of charging advice fees for professional services. The biggest benefit of dealing with a broker is the expert and often invaluable advice he or she can provide to customers and, of course, a comprehensive needs analysis cannot be discounted.

If a broker is required to charge for this expertise, parameters will need to be set. Will advice be provided once a year and an annual fee charged? Or will customers seek counsel regularly? Another aspect to consider is how fees will be regulated and how fees will be structured if included in insurance schedules. Customers will have the option to opt out if fees are paid periodically and advice is not provided. Alternatively, a broker will be entitled to stop providing advice if remuneration is not given.

Furthermore, the standard of the advice provided will also be regulated under the new framework, extending increased protection to customers and ensuring that advice meets set industry requirements. It is vital that a customer understands what services will be provided, and in what capacity the intermediary is acting so that advice can be effectively evaluated and compared.

Tied agents

The concept of dedicated agents is relatively new to the South African short-term insurance industry but RDR could facilitate the expansion of the model, as some brokers may prefer to set their own parameters and negotiate salaries.

This is in addition to the other benefits such as fair trading on competitive and specialist products, professional indemnity cover and access to the insurer’s geographical footprint and network of Underwriting Management Agencies (UMAs).

There is also decreased pressure on the compliance side as an insurer will look after the legal and regulatory requirements on behalf of the broker, acting as agents, who will operate under the company’s Financial Services Provider (FSP) licence.

In terms of the RDR proposal, these types of agents will be required to provide full disclosure to customers as to who they are affiliated with and the range of products and solutions they are able to advise on.

Brokers need to engage with the FSB and comment on the RDR White Paper before the allotted time closes at the beginning of March.

Open dialogue importance

The above also reiterates the overall importance of two-way dialogues between brokers and insurers who utilise the intermediary model. This must be a priority whether it is through regular newsletters and emails or in-depth workshops and face-to-face meetings.

With the onset of RDR, ensuring that brokers are informed of the latest developments and how to prepare for compliance, will be critical. Of course, global insurers have the advantage as they are able to capitalise on best practice from other markets, in this case the UK, and share it with their broker partners. The next step will be to watch industry discussions around the RDR and see how the new terms will impact and ultimately shape the South African insurance sector going forward.

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