Transparency and fairness in 2020

Herman Lombard, Founder and Executive Director of African Unity

The New Regulatory Regime

The insurance industry has long been beleaguered by mistrust and been perceived as a ‘grudge purchase’ by its customers.

The recent tragic case where the family of a deceased were compelled to drag the corpse into the offices of an insurer to force them to pay out on a funeral claim demonstrates just how a reputation that has taken years to build, can be threatened in a matter of minutes.

It also demonstrates just how fragile the trust relationship is between insurer and policy holder and reinforces the need for a system that is transparent and fair.

Herman Lombard, Founder and Executive Director of financial services provider African Unity believes that 2020 will be a watershed year for insurers as they entrench the new regulatory framework into their companies and begin to address issues of fairness, value and trust.

“Insurers who are able to demonstrate customer fairness, transparency and value to their customers will have a competitive edge”, he said.

Fairness is a cornerstone of the new regulatory regime which originated in National Treasury’s 2011 road map setting out government’s plan for achieving economic growth and which included a framework to achieve four major policy objectives - financial stability; consumer protection; financial inclusivity; and, combating financial crime.

This set the scene for changes to the Insurance Act in 2017 which apply to both long and short-term insurers. These changes include licensing requirements, operating structures and prudential standards for insurers (including micro insurers) and reinsurers.

This gave rise to the Financial Sector Regulation Act, enacted in 2018, which brought to life the ‘Twin Peaks’ regulatory system and saw the launch of the Financial Sector Conduct Authority (FSCA) to govern the conduct of financial institutions and a Prudential Authority (PA).

At the heart of the FSCA legislation is the ‘Treating Customers Fairly’ (TCF) principles into the entire financial services sector.

“TCF includes six fundamental principles to ensure fair outcomes for customers throughout the customer journey from the product design phase all the way through to the claims process.” says Lombard.

Consistent with these principles, the Policyholder Protection Rules hold the insurer responsible, irrespective of outsourcing or reliance on a representative, and are one of the most significant pieces of regulation coming out of the TCF era.

“The PPR applies to all insurance companies – so effectively, insurers will provide direction across the board to brokers, intermediaries and binder holders”, says Lombard.

Lombard explains that the rules encompass existing policies, new policies, potential new policies and amendments to existing policies and that changes to these rules will see further safeguards being implemented from 01 January 2020.

“One of these is Rule 13, which provides for strengthened data management. It requires that the binder holder has the capacity to comply with all privacy regulations and an IT infrastructure that is able to provide the insurer with access to names, ID numbers and contact details as and when they require it. Another is Rule 20, which centres around the termination of policies and will, apply to individual policies as well as group scheme policies”, he says.

While Lombard applauds the move towards a safe and financially inclusive environment that the new regulatory regime will provide, he cautions that complying may be costly and complex and may result in premium increases for customers.

He adds that the requirement that PPR changes must be implemented across all levels - agents, brokers, intermediaries and binder holders - may mean that insurers will have to embark on training and education drives especially for those intermediaries that require development in this regard.

While Lombard remains cognisant of the many other challenges that the new, digitised insurance era will place on the industry, he believes that successful implementation of the new regulatory regime will mean that insurers will be in a better position to begin to meet these and move forward with the support and trust of their customers.