No winners as Multimark III disappears

SAIA's recent decision to suspend the well-known Multimark III policy is a loss for the insurance industry, and will complicate understanding and increase costs for clients while placing a heavy load on brokers.

Is Multimark III (MMIII) anti-competitive? Most insurance practitioners will answer no, but it seems that the SAIA took no chances when it came to a possible run in with the Competitions Board. It was decided by the SAIA Board to withdraw MMIII, following a concern raised by the Competitions Board regarding the Mzansi product.

Raison d'etre

"Back in the early eighties when there were many more general short-term insurers than there are today, there was a plethora of multiperil business insurance policy wordings in the market," explains Mike Stoker, of www.insurancegateway.co.za, a division of Stoker Risk and ICT (Pty) Ltd.

"An apples for apples comparison of cover was nigh impossible at the time. This made the job of the intermediary in terms of providing the client with advice on which policy gave the best cover very difficult, to the detriment, in particular, of the small business insurance consumer.

"The market responded by drafting a standard business policy which was known as Multimark and this was introduced back in 1987. There were no restrictions on individual insurers being able to amend the standard cover, the only stipulation being that amendments had to be done by endorsement as opposed to in the printed wording. There was no stipulation that any insurer or intermediary had to use the Multimark wording in so far as small business insurance is concerned, and indeed there were a few insurers who did not adopt the Multimark framework."

Two decades of service to brokers

"The Multimark policy has many classes of insurance combined into one policy and the printed wording alone, excluding the policy schedules, runs into well over 100 pages," says Stoker. "This is why it was decided that changes had to be done by endorsement – to enable the broker to quickly and efficiently establish the differences in a particular insurer's policy, as against the industry benchmark wording.Without such an agreement brokers would not have been able to service the smaller businesses as it would not be cost efficient."

Anti-competitive?

Section 4(1)(b)(i) of the Competition Act 1998 (the Act) prohibits agreements between or concerted practices by competitors regardless of the pro-competitive or efficiency benefits it may bring. It was decided by the SAIA Board that the Competition Commission may consider the standard wording to amount to fixing of trading conditions.

"It is indeed difficult to see how the Multimark framework can be viewed as anti-competitive as there is no compulsion to either use Multimark and no prohibition from amending the cover provided by the standard wording," says Stoker. "Neither does the concept in any way dictate premium charges, which are set individually by each insurer."

Many insurers endorsed policies with deviations or enhancements from the standard MM III wording, to differentiate their products or to underwrite individual risks.

What now?

Nevertheless, Multimark has been withdrawn and replaced by the Standard Business Policy Guidelines.

Jeanine Mason, Head of Commercial Underwriting for CIB Insurance Solutions, says that their wording "will more or less stay the same with extensions and or additional cover being added. The wording for these is still under construction. Clients will be notified once wording has been completed. On monthly policies, clients will be given 30 days notice or changes will be implemented on renewal of the policy. On annual polices changes will be implemented on renewal of the policy."

Lourens Joubert, Head of Corporate and Commercial Underwriting at Santam says the company is also not making major changes. "We still use the same wording with our unique clauses but discarded any reference to Multimark. We simply communicated the official withdrawal of Multimark in general but because we still use the same wording there were no need to formally inform clients and brokers."

The broker on the short end?

In terms of FAIS it is the responsibility of the broker to inform the client properly of the cover provided. If an insurer now uses a different wording it will be the responsibility of the broker to point out all the differences to the previous cover the client enjoyed. This places a huge responsibility on the broker, but it seems they can to some extent rely on the underwriters to assist them.

CIB says that all clients will be notified and be sent the new wording once it is drafted and finalised. "Any changes with the wording will be pointed out to the broker, who will then be responsible for pointing out those changes to their clients."

Santam says that at this time, "because we still use the same wording, brokers can be assured that there are no unknown differences. At this stage we do not plan a different wording at renewal. Everyone knows the structure of the current wording and are free to endorse it to specific needs. If we were to make any changes to renewal terms this will be pointed out to the broker."

The impact

"The market needs an industry benchmark policy wording for small business insurance for several reasons, apart from the cost efficiencies, there is the aspect of training and, of course, to ensure the ability of the consumer to be able to make an apples for apples comparison of cover afforded," says Stoker. "I think a reversion back to the pre Multimark days would be a step backwards, would be to the detriment of the small business consumer and could well lead to some brokers exiting servicing this segment of the market."

"Multimark worked very well for the small to large commercial market where high volumes of policy transactions are experienced because it simplified the understanding of the cover provided," says Joubert. "For the lower volume corporate market, insurance covers are more complicated and tailored to specific client needs. "The change to each insurer having their own commercial policy wording will complicate understanding for clients and will place a heavy load on brokers who will have the duty in terms of FAIS to point out all the differences between the offerings of each insurer. This will increase the risk for brokers where differences were not properly pointed out because they can be held liable for damages to the client due to such omission. Brokers will have to spend more time in explaining differences which will lead to increased cost of distribution for brokers. In the end the consumer will probably have to pay more in broker fees to compensate for this burden."