Disruption is key for insurance industry future

While everyone senses major change is coming, the insurance industry is still trying to establish exactly what that will mean for their business, as Gareth Stokes reports from Sun City from South Africa’s annual insurance conference South Africa is recognised globally for its world-class financial services sector. Many of the factors contributing to its success were discussed at the 44th annual Insurance Conference held at Sun City in South Africa. The conference, themed ‘Disrupt, Debate, Deliver’ turned its attention to the country’s insurance roadmap during a collaborative panel debate that included participants from the regulators – the Financial Services Board (FSB) and National Treasury – and industry associations – the Financial Intermediaries Association of Southern Africa (FIA) and South African Insurance Association (SAIA). Details of the panellists will emerge as this article unfolds. South Africa’s regulatory framework includes various pieces of prudential and market conduct regulation that will enable its recently adopted ‘Twin Peaks’ model of financial sector regulation. The prudential aspect of this regulatory environment is based on the Solvency Assessment and Management (SAM) regime, while market conduct is underpinned by the outcomes- and principles-based treating customers fairly (TCF) doctrine. Insurance professionals in Australia and the UK will be familiar with TCF, while SAM is the local insurance equivalent of the European Basel accords. The ‘Twin Peaks’ regulatory structure is set down in the Financial Sector Regulation Act which was signed into law by the President on 21 August 2017. “The insurance roadmap acknowledges the importance of the sector to the future success of our country as well as the huge dependency that our economy has on the broader financial services sector,” said Ms Caroline da Silva, then DEO FAIS at the Financial Services Board (FSB). “It reflects the necessity for collaboration between regulators, policymakers and the industry in ensuring the sustainability of the sector.” By the time of publication Ms Da Silva will have taken over from Jonathan Dixon as DEO of insurance. Mr Dixon observed that insurance regulators worldwide were shifting their focus from post-global financial crisis reforms to a new era concerned with market development, SA being additionally concerned with the transformation of the financial services industry. “We are not only concerned with the ongoing professionalism of the insurance and intermediary segments but with improving standards around risk management, governance and handling of data,” he said. “Regulation is about making sure good business practices are in place and ensuring consistency.” South Africa has discovered that a collaborative approach to include all industry stakeholders is crucial for effective regulation. “The industry cannot develop new markets and grow sustainably on its own – we need to collaborate and SAIA is pleased to be part of the process and looking forward to the future together,” said Viviene Pearson, CEO of SAIA. Mr Dixon supported her view: “One of the greatest experiences during my nine-year journey at the FSB has been the model of partnership between the regulator, industry and National Treasury.” He referred to the SAM regime, which was developed in consultation with industry players from the very beginning, as an example of such partnerships before suggesting that similar practices would be successful under the market development agenda. Ms Da Silva introduced inequality and a ‘crisis of confidence’ as top challenges for SA’s insurance sector over the next three to five years. “The divide that we have between the rich and the poor, between the haves and the have-nots and the fact that the majority of our population is disenfranchised without access to the insurance sector remains of grave concern,” she said. Business confidence and trust are essential components for economic growth, but the former measure is stuck in the doldrums presently due to the impact of political tensions, economic policy uncertainty and low credit ratings. The crisis is reflected in the abnormally high levels of liquidity within the private sector, with non-financial cash stockpiles estimated in excess of R750 billion as firms take a ‘wait and see’ approach to new fixed investments. “The regulator works towards creating trust and confidence with a focus on creating a sustainable industry wherein companies can meet their obligations, with integrity, through the fair treatment of customers,” said Ms Da Silva. South Africa has an added challenge in the need to transform an economy blighted by Apartheid policies. “Transformation is a key tool in achieving inclusive growth and a sustainable and stable SA,” said Ms Pearson. She added that the role of insurance in growing an economy was not in dispute, but that efforts to transform the sector to reflect SA’s diverse society would have to be accelerated. “Transformation is a key imperative for the insurance sector,” agreed Mr Dixon. “Everyone recognises that we have been slow to come to the table on these issues and that time is running out; before the end of 2017 we need to develop and agree a viable solution that will take the industry forward insofar as ownership – we need to be very upfront and very frank and very radical in the approach to changing the sector.” These sentiments were encapsulated in words attributed to Sfiso Buthelezi, deputy Minister of Finance, who is reported to have told insurer CEOs: The best insurance policy that you can buy for your business is to invest in transformation. Financial inclusion was raised by the panel as a challenge faced by insurance markets globally. All stakeholders including intermediaries, product providers and regulators will have to find ways to extend the benefits of insurance – protecting assets and incomes – to the poor. Among the trends that emerged during the Insurance Conference was the impact of technology, particularly on the intermediated insurance distribution channel. This led to questions about the role that financial advisors, insurance brokers and other financial intermediaries would play in the future financial services landscape. “Intermediation is as relevant today as it has ever been and will continue to be a critical enabler for economic growth, transformation and wider access to insurance products,” said Lizelle van der Merwe, CEO at the FIA. “South Africa offers a unique environment in which good financial advice will be essential to achieve the regulator’s stated goal of a sustainable insurance sector that delivers good consumer outcomes.” Ms Da Silva observed that the level of disruption caused by technology solutions insofar as current insurance practices would correlate to the confidence that customers had in the sector. The role of the intermediary is therefore to develop their advice and service offering with due recognition for the process improvements and efficiencies that technology allows. There is little doubt that the development and delivery of innovative insurance products, enabled in part by new technology, will contribute to a more inclusive and sustainable insurance environment. But technology could be a double-edged sword. “Although fintech and insurtech offer opportunities for growth, they also introduce risk,” said Dr Reshma Sheoraj, director of insurance at the National Treasury. “We must consider how the regulatory environment evolves to accommodate tech innovation – such solutions will certainly become important as we tackle the financial inclusion question,” she said. SAIA meanwhile observed that all industry stakeholders would have to do more in terms of educating customers about fintech and insurtech products to achieve maximum benefit. The panel referred briefly to comments made by Dr Sebastian Herfurth, co-founder of Friendsurance, who had presented to the conference on the previous day. To paraphrase, he observed: I love regulation because it is aligned with my business – my business is to treat customers fairly and add value to their lives and when the regulator tells me, I am not doing this because it is good for me but because it helps with my own strategy. Ms Da Silva concluded that the insurance roadmap was about giving business this necessary ‘steer’: “By collaborating as a sector, as the regulator, as the policymakers, we will ensure this industry is successful into the long term.” Ms Van der Merwe concluded by reflecting on the theme of the conference. The FIA recently participated in an interaction that could be seen as disruptive to the regulatory process; but with the good intention of building a sustainable industry. “We were challenged to work with other industry stakeholders and demonstrate to the regulator that we could work towards collective outcomes that are good for the industry,” she said. “In keeping with the ‘power of collaboration’ theme we can report that the various stakeholders are aligned on the strategic objectives of the sector with due consideration for each of our constituencies.” Dr Sheoraj concluded that there were many common goals for industry stakeholders to work towards: “Collaboration is vital as we go down the rocky road that lies in wait during the next few months – we are pushing the industry to come up with plans and solutions to address the transformation issue and would remind all delegates that there is a responsibility on each of you to take this message to your companies and drive the agenda going forward.” It is fitting though, to allow the last word to Mr Dixon, who leaves the FSB after nine years to take up the challenging position of Secretary General of the International Association of Insurance Supervisors (IAIS): “The regulator may have been a useful disruptor in the past – in terms of initiating change – but the conversation has moved on so much in the past decade that it is now about the industry as a collective taking ownership and moving the various issues forward on the basis of collaboration, particularly on aspects such as transformation.”

Disruption is key for insurance industry future

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