Lizelle van der Merwe
The extent of regulatory change is evidenced by the number of draft regulations issued for comment around the December 2016 holiday period, including Draft replacement Policyholder Protection Rules – Long Term & Short Term; Proposed amendments to regulations under S70 of the Short Term Insurance Act and S72 of the Long Term Insurance Act; and the proposed FAIS and Insurance Conduct of Business Reports. Comment on the FSB’s most recent Retail Distribution Review update is also due by 31 March 2017.
Fair remuneration (under the principle of ‘cost plus a reasonable rate of return’) is important to financial advisors and insurance brokers. The FIA is concerned that the sheer volume and complexity of regulatory change currently underway will negatively impact the long term sustainability of advice-based practices.
“Our members face a double-edged sword of rising business and compliance costs on the one edge and income pressures on the other,” says Lizelle van der Merwe, FIA CEO. “Changes in the ‘cost and income’ balance affect the value of their practices as well as their ability to participate in a transforming insurance economy where financial inclusion and business development is at the heart of the broader strategy for the financial services industry”.
The draft insurance regulations may cause hardship and loss of employment, particularly in the middle to lower earning brackets and the additional expenses necessary to give effect to increasing regulation, whether operational- or compliance-related, will further render many small to medium size intermediary practices unsustainable. There are thus genuine concerns that regulation will result in unfavourable outcomes for the very consumers that our members insurance delivery currently serve to protect.
“We are also concerned about the possible impact of the proposed regulations and regulatory structure on the affordability of advice, the seamless delivery thereof and the knock-on effect on important objectives such as financial inclusion and transformation in the sector,” says Van der Merwe. “The latest wave of proposed regulation will make it more difficult for new entrants to enter the market, hinder transformation initiatives and restrict competition”.
The FIA represents a diverse constituency across multiple insurance disciplines and with different business models; but the consumer always takes centre stage. “Our concerns with the proposed regulations range from the need for a holistic comprehensive economic impact study on the remuneration earned by the various intermediary and delivery models as well as the lack of enforcement of the current regulations when discipline is required,” says Van der Merwe.
Despite these challenges the FIA is actively engaging with the regulators with the aim to ensure disciplined and sustainable intermediated delivery in the financial services sector. It is an organisation that stands firmly behind financial soundness, beneficial advice, integrated delivery, innovation, transformation and a more inclusive insurance economy. It also supports SA’s broad regulatory principles including that regulation must be: transparent; comprehensive and consistent; appropriate; outcomes based; risk-based and proportional; pre-emptive; a credible deterrent to misconduct; and where practical be aligned with applicable international standards.
“We are holding a close watching brief to ensure that our members’ concerns are adequately reflected in the eventual legislation,” says Van der Merwe. Ending on a positive note, she adds that being a financial advisor or insurance broker remains a relevant career in South Africa. “There are six sectors identified as promising for Africa-based companies to enter into, with insurance and healthcare being two of them however, the three biggest areas of disruption are likely to take place in the insurance, retail banking and payments areas,” she concludes.