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Navigating the maze of regulations

01 June 2015 Seef Botha, Zurich South Africa

Under current binder regulations, insurers are able to delegate authority to an underwriting manager or intermediary to issue, renew and endorse a personal lines policy; determine the policy wording; policy benefits and premiums; and settle claims.

A number of adjustments to this regulation can be expected as industry players continue discussions around its implications, and further enhance their collaborative efforts with broker partners.

Unorthodox stipulations

While some markets might view the stipulations of the binder regulations as unorthodox, it is certainly not unique to the South African market.

As a result, global insurers have an added advantage in terms of compliance and implementation as they are able to exchange knowledge and expertise with colleagues in the UK and Australia who are already familiar with this type of framework.

The regulation itself addresses the possible occurrence of intermediaries being given authority from an insurer or carrier, having it cancelled or revoked and then continuing to do business.

This means that no cover is provided when it is time to claim. Another aspect of the regulation is that responsibility and accountability is placed solely on the insurer when executing a mandate, and all conflicts of interest that may arise during outsourcing need to be mitigated where, and if, possible.

RDR pressure

One aspect that has generated some debate and discussion within industry circles is the Retail Distribution Review (RDR) stipulation which focuses on the capping of binder fees. This relates directly to the fees payable for the performance of binder functions and has raised some concerns around the feasibility of a one size fits all approach.

For example, running a brokerage in Johannesburg is more expensive - higher staff salaries - than operating in an outlying rural area. Questions have therefore been raised around whether it is fair or reasonable to cap these fees on a blanket basis.

Having said this, it is important to note that the RDR indication is not restrictive in the sense that it is absolutely prescriptive, but it does afford parties the opportunity to determine what a reasonable fee would be within a defined/capped range.

In essence, it is vital to review the binder regulations in conjunction with directive 159 from the Financial Services Board (FSB). The particular directive deals directly with outsourcing in general, providing necessary content and outlining material functions and specific definitions.

Consumer protection

A common thread throughout current regulatory frameworks, as well as binder regulations, is the enhanced protection of the policyholder. This customer centric philosophy should be ingrained in the culture of all insurers and should filter through to every level of the organisation, from compliance and governance, to the claims department and intermediaries.

Our reality is that while a decade ago, the customer was king, today it is far beyond that. The internet has meant that any disaffected customer can not only publicise negative information on your organisation, but can also initiate legal proceedings and put pressure on stakeholders to take action against a business.

It is therefore critical that your customer-centric culture is lived by the people who represent your brand in the customer environment, and that is your broker partners.

This is why ongoing broker training and information sharing sessions around binder regulations – and more specifically how certain aspects of the framework are interlinked with directive 159 – should be prioritised.

In addition, all necessary resources need to be made available to broker networks, ensuring that new regulatory developments are addressed adequately and timeously. It is evident that regulation within the financial services industry is constantly evolving.

Going forward, certain aspects of the binder regulations will be clarified and refined. The importance of continued industry discussion and participation as well as stakeholder work groups cannot be discounted. Ultimately, it will be about balancing the needs of the customer with the ongoing sustainability and profitability of the short-term insurance sector.

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