A back to basics approach will reward short-term intermediaries through 2011
Barry Taylor, Chairman of the Short Term Exco and Director at the Financial Intermediaries Association of Southern Africa (FIA), says with the full implementation of the FAIS General Code of Conduct, Conflict of Interest regulations and the Consumer Prote
Taylor reckons short-term intermediaries are in for a busy year, given the volume and speed of new regulation. The Insurance Laws Amendment Act will change the behaviour of those companies (and their employees) with binding authorities in place. “I think the various regulatory chances will result in a change of mindset in the intermediary space – with a renewed focus on the consumer,” says Taylor. Insurance intermediaries – particularly those in the long-term space – will have to put self interest on hold and make sure the product they offer is appropriate.
Regulation makes the customer king
South Africa’s regulatory authorities have created a consumer paradise with a raft of financial and non-financial legislation. The country now boasts some of the most advanced consumer protection regulation anywhere in the world. The Consumer Protection Act, National Credit Act and FAIS Act (with continuous revisions to the Code of Conduct) require financial services professionals to put the customers interests before their own at all times. But there’s so much happening in the consumer protection space that Joe Average hasn’t quite caught on to his powers!
Taylor observes: “If we look at the entire consumer spectrum then it appears the corporate buyers are up to speed on the latest regulatory developments – they’re right on top of the latest issues put out there by the media.” It’s more daunting for the private consumer. They’re bombarded with new rights and regulations from government departments and overwhelmed by advertising from existing and emerging product providers. It’s up to the intermediary to guide them through the morass. If you want to dominate the financial advice space you’re going to have to get back to the basics.
He believes the best way to handle the explosion of direct competition, retailers bringing insurance product to their shelves and regulation flying in from every corner is to offer your client good advice and a good innovative product. Going forward brokers will have to apply commonsense to deal with the dynamic environment they operate in.
The weather doesn’t give a hoot about regulation
The financial services industry is so busy carving out laws and amendments we risk losing sight of the reason short-term insurance products exist. These covers are designed to protect policyholders from accident or disaster by compensating for the damage or loss caused by insured events. An adequately insured client will be returned to the position they were before the insured loss took place. And there’s been plenty of action on that front this year.
Widespread flooding has caused billions of rand damage to crops, private homes and public infrastructure through January 2011 – with more rain on the way. The media has reported extensively on the flood damage and kicked off speculation that insurance premiums will go through the roof as a result. Taylor dismisses these speculations as an overreaction as the true extent of insurance losses hasn’t been assessed yet. “In terms of the property covers the insurers have their catastrophe covers in place,” says Taylor. If the losses are large enough then the re-insurers will pick up the non-motor catastrophe “bill” – if not – then the insurers pick up the tag within their own pre-determined limits. He believes the volume of flood-related motor claims isn’t a big issue either, given the total insured universe.
Insurance companies have also done extensive “work” to limit the financial impact of annual flooding. Santam recently completed a massive project in which they mapped out properties below certain flood lines… They’ve no doubt used this study to mitigate the flood risks on their book. There’s certainly evidence that many property owners facing huge damages due to the latest round of flooding are uninsured. Yes – rates could be affected – but we’d have to wait for year-end when the catastrophe re-insurance rates are typically reassessed before we can jump to any conclusions.
What role will the FIA play through 2011?
We asked Taylor what initiatives the FIA would focus on this year. Apart from driving efficiencies across the industry he said the focus would be on the regulatory interventions mentioned in the opening paragraphs (Insurance Laws, Code of Conduct etc) plus the recently proposed Treating Customers Fairly concept. “What we are saying to our members is let’s stick with what we know best – the basics of offering our customers a good, open, honest and innovative offering.”
Editor’s thoughts: A recent PwC survey on family businesses flagged government “red tape” as a major drawback to local business. A mid-size South African company was spending up to 200 hours per annum (versus 110 hours in the UK) on tax compliance alone! Have you noticed a significant increase in the amount of time you / your company / employees spend on regulatory issues? Add your comment below, or send it to gareth@fanews.co.za
