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Following the flock

01 August 2014 Suzette Olivier, SAIA

The South African insurance industry is currently facing a tsunami style tidal wave of regulation as the Financial Services Board (FSB) works fiercely to get the country up to date with international financial services trends.

While this is a reality that needs to be dealt with, the heated question that is being levelled at the FSB is, why is the FSB following international regulation and not formulating our very own regulation? Are we following like sheep, or leading the flock?

Building the tsunami

Before we can answer the question as to whether the South African industry is following the international market, we need to look at what the exact purpose of the legislative changes are.

Since 1994, South Africa has made significant strides forward both politically and economically resulting in the country participating in in several international bodies such as the G20 – of which South Africa is the only African representative – BRICS (Brazil, Russia, India and China) and from an insurance perspective the International Association of Insurance Supervisors (IAIS) and the Global Federation of Insurance Associations (GFIA).

The G20 has a mandate to achieve global economic stability, promoting financial regulations to reduce the risk as well as preventing a future financial crisis and modernise the international financial architecture. Because South Africa is a member of the G20, it is committed to achieving the same goals which are set out by the global body.

To this background we also need to be reminded that our legal system is a hybrid system which is inherited from Roman Dutch Law and English Law.

Adopting legislation

There is some concern in the industry that South Africa is adopting international legislation, without any adaptation to local challenges and industry characteristics. Although the FSB took a cut and paste approach with the Treating Customers Fairly (TCF) outcomes, it has been actively engaging with the industry in implementing this initiative to ensure that it is relevant and appropriate to the South African insurance market through its TCF Regulatory Framework Steering Committee. Similarly the Regulator is making a real effort to engage with the industry regarding the development of the Retail Distribution Review (RDR) expected to be released in August 2014

There are also concerns about the adoption of the RDR in the UK and Australia. They have achieved high levels of consumer protection, and the majority of the population of these countries have a high level of awareness and education when it comes to the financial services industry.

However, we need to adopt the positives and prevent the negatives. We need to leverage off the UK and Australian framework and see where and why it was successful and where and why it failed in order to make the appropriate adaptions for the South African environment. We can then take a significant step forward into paving the way with sophisticated legislation that puts the customer first.

The value of compliance

There is still the perception in the industry that purchasing an insurance product is a grudge purchase. While there may be many reasons to explain why this is the case, a lot of it can come down to bad experiences that customers have had with an insurer or an errand intermediary. We need to change this. Legislation has firstly transformed the insurance industry into an industry of professionals, which now needs to turn more focus of an industry that cares about the consumer.

Whether we feel as if we are sheep that need to become shepherds, we cannot resist legislation compliance. Resisting TCF and RDR would be tantamount to committing corporate suicide. There is value in making the customer the central focus of your business, so follow the rest of the flock.

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