As the months go by in 2017, we are coming closer to the full impact of the Financial Services Board’s (FSB) programme of Regulatory Reform being felt on the industry. This will culminate in the adoption of the Twin Peaks model of regulation which separates powers between the South African Reserve Bank and the Financial Sector Conduct Authority, which is the entity that the FSB will transform into.
There has been a lot of debate, and at times confusion, when it comes to Regulatory Reform and the motivation behind it. In an effort to address some of these concerns, the FSB recently held a round table whereby certain issues relating to the Insurance Bill where discussed.
Chairing the round table was Jonathan Dixon, Deputy Executive Officer of the Insurance Department at the FSB, who pointed out that the Insurance Bill will be the overarching piece of legislation which will govern the industry from a prudential point of view. The Short Term Insurance Act and the Long Term Insurance Act will cover issues of governance.
One of the aspects held within the Insurance Bill is a change in Policyholder Protection Rules (PPR). This has caused quite a stir in the industry and has left a few industry participants, and commentators, with a number of concerns.
One of the concerns raised with Dixon was if the motivation behind changing the PPR was as a result of any specific incident/incidents?
“It wasn’t that there were any other failures of insurers (outside of saXum) which led to the adoption of the new PPR. However, this does not mean that we did not come close to this,” said Dixon.
He added that the PPR was adopted to enhance the solvency of companies and was done for a number of primary reasons. The main reason was that it must be remembered that the South African financial services industry is an interconnected industry. If there is an insurer failure, the impact on the client goes far beyond the loss of an asset.
The saXum example was probably the most pertinent example of this. The failure of saXum led to hardship among policyholders (some 4 000 by the FSB’s estimations) which not only led to the loss of an asset but to the loss of income and business interruption as some of the vehicles involved in the case were owned by Uber businessmen.
Another criticism of the Regulatory Reform which was raised at the round table was that it set down a number of vague recommendations that insurers were merely expected to (or even forced to) comply with.
Dixon nodded his head and acknowledged that there were some areas where it could be argued that it would seem this way, particularly when it comes the market conduct side of the regulation and the PPR.
“However, this has not been sprung upon insurers and brokers. This was done over a number of years and after extensive consultation with insurers and brokers within the industry. The expectations outlined in the Regulatory Reform is the culmination of principles and rules which would give effect to Treating Customers Fairly,” said Dixon.
It is done in an attempt to create a level playing field where companies who comply with principles of good practice would thrive while those who didn’t would not.
There were some concerns regarding media reports which stated that there would be heavy punitive fines imposed on companies who do not follow the PPR to the letter. Again, Dixon admitted that this was not communicated through the media in the best way and assured all at the round table that penalising such behaviour will be the last resort after the regulator has had an open discussion with the parties involved in a dispute.
A hindrance or an enabler?
One of the biggest concerns raised with us in previous newsletters, and within a few articles in the magazines that we publish, is that Regulatory Reform is stifling innovation at a time where innovation is needed to remain relevant in the industry.
Dixon acknowledged that this is a period of change in the industry, but reminded those present that change is always an ever present. He argued that Regulatory Reform actually gives companies the resources to understand change.
“As an industry, we need to have a better understanding of risk and the costs associated with dealing with the risk. Regulatory reform will force companies to be introspective and better understand the core of their business and the true economic cost of servicing a client,” said Dixon.
We have no choice but to comply with regulatory reform. Let’s try and see the positive side of it and how it can benefit your business. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts email@example.com.