What will the future hold?
Jonathan Faurie, FAnews Journalist
One of the topics on top of every brokers mind is what the industry will look like after the implementation of regulatory reform. At the moment, it is business as usual, but there are constant reminders from the Financial Services Board warning brokers that the winds of change are blowing and that the industry that they are used to will change significantly.
Uncertain view from the top
Uncertainty is nobody’s friend; and while brokers have accepted that change is inevitable, they want security and peace of mind that the industry will not change into a place where doing business is nearly impossible.
A miniscule measure of this certainty has been provided by the FSB, but the fact that they cannot settle on a firm date for the implementation of regulatory reform negates all the good work they do when they engage with brokers.
Destination 2016 has become destination 2017, and don’t expect Twin Peaks to be implemented in January. In an interview with the FAnews at the 2016 Insurance Institute of South Africa Conference at Sun City, Dr Reshma Sheoraj - Director: Insurance Policy National Treasury – said that Twin Peaks will most likely only be implemented in April 2017. So the promises of fresh changes at the beginning of the year are being pushed back.
Are we in for another year of delays and uncertainty? It seems like it is shaping up to be what horse racing enthusiasts call a racing certainty.
I come from a land down under
One thing is certain though, the FSB wants to transform the industry from a reactive industry to a proactive industry. Perhaps brokers should take this to heart and look at how Twin Peaks has affected industries in which it was implemented.
Speaking at the conference, Dallas Booth – CEO National Insurance Brokers Association Australia – gave some insights from the land down under and how Twin Peaks has changed their market.
The Australian market is split into general insurance (any insurance not related to life insurance), and life insurance. The total premiums recorded in the Australian market during 2015 was A$18,5 billion of which just over A$15,6 billion was placed in Australia.
Since the implementation of RDR, direct insurers dominate the general insurance market while brokers mainly place commercial insurance. While this may seem like a system that will be bad for South Africa, Booth added that despite this split, brokers and intermediaries still placed 50% of the country’s business.
The saving grace
Like South Africa, dynamics within the Australian market pushed it towards the adoption of Twin Peaks. Since 2001, the prudential authority is the Australian Prudential Regulatory Authority (APARA) and the market conduct authority is the Australian Securities and Investment Commission (ASIC).
“The Financial Services Reformation Act was implemented in Australia in 2001 and has been the saving grace of the industry. When the global financial crisis hit in 2008, no major Australian bank or big name insurer failed to meet their obligations. They were well capitalised and were able to meet commitments,” said Booth.
No silver bullet
Despite the measures put in place, there were still some insurers who did suffer the effects of the crisis. “Thousands of Australians lost billions of dollars of their savings, investments and retirement funds which raised major concerns after a number of financial services and advice companies failed,” said Booth.
He added that ASIC clearly had challenges as the regulator and failed to protect many people. “No matter how hard you try, people will still invest in wild schemes that promise out if this world returns. And people believe them,” said Booth.
The future
So we have seen that there has been a mixture of positive changes as well as some negative side effects. What does the future hold for regulatory reform in Australia?
“There will be a heavy emphasis on the avoidance of failure rather than clean up; this is a culture issue. There will be a strong obligation placed on both manufacturers and distributors of insurance products in order to make sure that the product operates fairly in the hands of a client,” concluded Booth.
Editor’s Thoughts:
Nobody knows what the future will hold. But if regulatory reform cannot offer complete protection in an advanced market such as Australia, what will happen in South Africa? Let’s hope that the regulators – the FSB and National Treasury who were both at the talk – will take cognisance of this and will work with brokers and insurers to improve the industry rather than wield a big stick. You catch more bees with honey than with vinegar. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
