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The ins and outs of key reform issues

06 March 2018Jonathan Faurie

During the 2018 Budget Speech, Finance Minister Malusi Gigaba stressed the important role that the financial services industry plays in South Africa. He also noted that there has been some uncertainty in the industry, and that Twin Peaks will be implemented on 1 April.

This will be the pinnacle of the wave of regulatory reform which is taking place in the industry. All the individual elements such as Treating Customers Fairly (TCF), the Retail Distribution Review (RDR), the Policy Protection Rules (PPR), and others will all tie together. 

A tougher framework

A reality that the industry will need to come to terms with is that this new wave of legislation will come with a stricter monitoring on compliance by the Financial Sector Conduct Authority (FSCA). 

Speaking at the recently held Financial Intermediaries Association of Southern Africa’s (FIA) Power Broker Session, Danny Joffe – Senior Legal Adviser at Hollard – said that while the industry was adhering to the outcomes of TCF, they were not formally legislated. This will change when the new PPR will be released. 

“One of the aspects of legislation that the FSCA will be tough on is that insurers must be proactive in the advice that is provided to clients. This means that insurers will have to scrutinise the record of advice that brokers give to clients and they must do proper due diligence when it comes to the appointment of brokers. Governance and oversight are also issues that will need to be looked at,” said Joffe. 

Another TCF issue that will be looked at in earnest is the marketing of products. The FSCA will be asking serious questions about whether insurers are living up to the commitments provided to clients. 

Opening a can of worms

The main issue here will be the message given to clients in the marketing material. A specific example of this is the marketing of the non-claim bonus. Will there be an extra premium attached to this? Was it clearly explained to clients? What are the restrictions or exclusions attached to this? 

The marketing issue opens a can of worms in that the FSCA is adamant that all disclosures need to be made at policy inception. 

“Further, the FSCA says that insurers either need to make these disclosures to clients directly or through contracted brokers. There are many cases where the insurer does not have a direct relationship with the client and that interactions with clients are done through brokers. Even then, an insurer needs to be a signatory on any document that points out policy restrictions and exclusions. This can be done on a Tripartite agreement platform where brokers and clients are the other signatories,” said Joffe. 

The appropriateness of advice is going to be something that the FSCA will take very seriously. Clients are sold policies based on their needs in the hope that the product will fulfil these needs. However, a key question still needs to be asked: if a client knew about the restrictions and exclusions that a specific policy has, would they have purchased that product? 

Amended binder regulations

Throughout the process of regulatory reform, there have been several concerns raised in the industry about the future of binder agreements that are entered. 

One of the big issues that the FSCA hopes to address through the new binder regulations is the issues of fees. According to Joffe, the regulator wants to control fees so that there is no conflict of interest in the industry. They don’t want different fees being paid for the same function. 

When will the new fee caps apply? “Any new binder agreement that was entered into prior 1 January 2018 will have a six months grace period to make sure that they adhere to the new fee caps. Anybody who is earning a fee that is higher than a fee cap… that fee needs to be amended down,” said Joffe. 

What are the caps? Joffe said that it was quite confusing the way that the caps were put down. However, an article on Moonstone points out that 3,5% applies to binders who are entering, varying or renewing policies on behalf of clients. This can be increased to 5% should the functions include determining policy wordings, premiums or benefits. Finally, a provision of 4% is made for settling claims, while binder holders who simply determine wordings, premiums or benefits are not entitled to a fee. 

Editor's Thoughts:
These are just some of the key issues that regulatory reform will address. There are many more and it is being done with a view of improving the industry. If we all play our part, the value of this industry will never be questioned by those who are in positions of power. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by B.L.Oxley, 06 Mar 2018
I cannot help but ponder how unqualified personnel acting under supervision"or having no real training in exactly what a policy covers or the application of clauses in the event of a loss can possibly be seen as complying with TCF.
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