Our President, Mr Peter Olyott and I attended the WFII World Council Meeting in Lisbon during March. The purpose of this meeting is to review the key issues and positions of the WFII from an intermediary perspective as well as to engage key stakeholders such as the IAIS, EIOPA and the OECD (refer below for the definitions) to discuss synergies and developing trends within the insurance industry. To understand who the WFII is, you can visit their website – www.wfii.net for further information.
We have prepared some insights which we believe are relevant for our members and the industry at large. It is clear that the regulatory landscape in South Africa is largely driven internationally and going forward it is evident that the IAIS led by Jonathon Dixon, ex Deputy Executive of the Financial Services Board (known as the Financial Sector Conduct Authority) and now Secretary General of the International Association of Insurance Supervisors (IAIS) will be a key role player in influencing the direction and nature of international insurance regulation .
The drive for regulatory convergence by key stakeholders such as the IAIS requires industry bodies such as the WFII to work together towards building sustainability, trust and confidence within the intermediated insurance sector.
Key points raised by the Executive CSE Committee:
- Digitalisation and Regulation remain the most important topics of conversation for intermediaries with liberalization, governance and catastrophic risks being the lowest topics of conversation.
- The view is that the intermediated market is stable however, the environment is changing and therefore the role of the intermediary must evolve. The intermediary sector must therefore take ownership of it’s own future given both the anticipated regulatory landscape , driven primarily through the protection of the interests of both individual consumers and small business , and the technological , socio- economic and environmental changes influencing the consumers of insurance products and services .
- The intermediated market is not growing in terms of the number of players and therefore the development of intermediated businesses is a priority, given the value which can be provided to all sectors of the economy .
- There is consensus that intermediaries add value to the global insurance economy.
- There is consensus that the future role of intermediaries will include understanding the economic impact of risks and provide guidance to consumers in respect of risk prevention and mitigation.
- There is consensus that our industry is over regulated and we require better enforcement of the regulation.
- Very interesting, the view from 80% of the participants is that they think compliance promotes trust and confidence in business.
- Healthcare is a growing market for intermediaries.
- The bulk of the participants say there is no current discussion or proposed regulation regarding intermediary remuneration levels. Given that this is a current discussion point being mooted by our regulators, it is not inconceivable that this aspect could be raised at an international level. It is in our interests to monitor in fact whether this occurs.
- The biggest business concerns for intermediaries is recruiting and retaining key staff.
These issues and topics were further debated at the Tour d’Horizon which is a workshop which comprises of the participating members of the respective associations. It provides intermediaries from all over the globe the opportunity to make submissions or raise their points of view. It also provides an excellent networking platform to engage regarding practical issues that we deal with as a trade association on a daily basis like member apathy, membership value and the importance of industry bodies like the FIA.
We opened the World Council meeting with Mr Gabriel Bernardino – Chairman of the European Supervisory Authority (EIOPA) followed by Mr Jonathan Dixon – General Secretary of the International Association of Insurance Supervisors (IAIS). Highlighted below are key insights mentioned for your consideration.
EIOPA, the European Supervisory Authority for the insurance and occupational pensions sector.
Gabriel’s topic was - Developments in regulatory and supervisory issues in Europe from an intermediary perspective.
- Two focus areas: cross border business and global insurance groups. If intermediaries want to do business in other countries, it’s important that regulation supports the building of trust and confidence with consumers. The focus in respect of global insurance groups is the impact on the capital position. It is clear that the closer regulatory regimes are across the globe , the easier the facilitation of global insurance solutions are : a significant factor when looking at international investments .
- Supervisory convergence – the focus is shifting from prudential to market conduct therefore the role of the intermediary is very important as they are the first line of defence with the consumer.
- There is a need to adapt regulation to digitalisation (it’s not just about the evolution of business, it’s the reality of insurance disruption). Obviously to give real effect to these , insurance regulation needs to supported by legislation underpinning for instance global cyber exposures evident in a digital service delivery .
- The biggest opportunity for digitalisation is the impact it could have on operational efficiencies such as claims management, engagement with clients and simpler products. Due to the complexity of insurance, there will always be a need for the human interface.
- Two big concerns include big data and cyber risks. They are going to focus on the way big data is used for underwriting, how it will impact the price of insurance and underwriting of risks. Cyber disruption and attacks requires a collective effort by all stakeholders (including intermediaries) to address this risk.
- They are doing a thematic review on big data (how it is being used, the influence it will have on price and identify what the ethical issues are) as well as how the different supervisors are approaching these kinds of risks in conjunction with market stakeholders.
- Intermediaries play an important role into the future of insurance however, the role of the intermediary must evolve to meet the changing needs of the environment. It is clear that if intermediaries do not know what that future should look like and gain consensus from regulators – future regulatory intervention could circumvent these strategic directions – because we will be unable to communicate our views and support them in terms of how the role needs to change.
- Two main elements for intermediaries (make sure that clients understand insurance and what risk is being transferred). There will always be an underlying complexity of insurance and the human face with an explanation will be fundamental going forward. Second element – risk management (making sure customers manage their risks and they understand the economic importance as well as prevention measures in the best possible way. Digitalisation is an enabler in this regard.
- We are flooding customers with too much information. We need disclosure however, it must be fit for purpose and builds confidence and trust in the sector. The cost of providing consumers with so much information is escalating costs for all stakeholders.
- Supervision needs to be preventative, not after the event has occurred.
- We have enough regulation, what is lacking is more enforcement
- Supervisory convergence (the world is changing and everybody needs to be proactive including the supervisor).
He quoted - Intelligence is the ability to adapt to change – not tomorrow, today.
IAIS, the International Association of Insurance Supervisors.
Jonathan’s topic was the views of the IAIS on its future as an international standard setting body and more in general about the developments and challenges in supervision and regulation.
- It’s a new world, new issues (like fintech and cyber which will impact on policy holder protection) therefore the role of intermediary bodies become increasingly relevant as we are in the frontline.
- There is a highly dynamic global mix of economics, politics, social and technological factors which are shaping the sector.
- 3 things the IAIS do very well 1) they are an inclusive association, they can call upon any supervisor all over the globe 2) They have demonstrated how diversity can work together towards common goals such as protecting policy holders and promoting global financial stability of the sector) 3) they can make tough decisions
- Future of IAIS – need to develop global solutions and processes for the insurance sector. They are committed to transparency and stakeholder engagement as this instils confidence and protects the credibility of international standard settings.
- Globalisation – IAIS members appreciate the benefit from a consistent approach to regulation especially when dealing with global insurance groups. It does not mean it has to be the same but supervisors must speak a common language.
- Developing confidence and trust in the sector is their key priority.
- They are in the process of finalising the development of the holistic approach to the assessment and mitigation of systemic risks in the global insurance market. The approach will be activity based vs entity by entity. Insurance poses different systemic risks to banking.
- Increased focus on global emerging risks such as cyber. IAIS must be pro-active to help shape the regulatory environment.
- IAIS will be establishing a fintec forum to review fintec issues and ideas using regulatory sandboxes.
- The IAIS will develop guidance notes on topics such as artificial intelligence, machine learning, digital technology and market conduct aspects of digitalisation – very active area for 2018 and they want to work closely with the intermediary.
Purpose of WFII involvement by the FIA / the importance of our participation in the WFII and engagement with international regulators
- It is clear that the South African regulatory landscape was largely driven by what occurred in the UK /Europe.
- To understand the ramifications for the SA intermediary landscape, it is key for us to understand what has occurred in the UK and Europe in particular.
- It has become clear to us that one particular way of engaging with the regulator on future proposed regulation is to use global benchmarking as a reasonable response to equitable reward e.g. if on average the global brokerage allowed for motor is 15% where accident rates per 100 000 vehicles are lower than SA – why should we be receiving less commission that our international counterparts are receiving more (as an example). Obviously the global benchmarks can be applied over a number of different disciplines – it will hard to argue particular cases if SA is being singled out when compared to the worlds most sophisticated and developed economies or are out of line with what is happening as similar developing markets such as Brazil, China , India , Russia etc .
- All brokers across the spectrum have an issue being measured on TCF which are principles which would need to be challenged in a court due to the vagueness of said principles – it is akin to playing a game where you only find out what the actual rules are once you are in the field and playing and not beforehand where only the broad meanings of the intention of the principles are made known. This is an area where through common ground the WFII can influence the IAIS and their respective regional regulators.
- Whilst much attention has been paid to the regulatory environment – both the international regulators and the WFII and it’s constituencies have not made much progress in the areas of digitisation which in the case of intermediaries is crucial given the current wave of environmental changes which is bringing about a fundamental change in consumer decision making which could hold more immediate danger to the existence of intermediaries than regulation alone poses . The FIA is pushing the global agenda on this matter (with explicit support from regulators here and abroad).
- We are able to establish virtual work groups on an international basis to discuss topics of mutual interest such as for instance intermediaries and cyber risk exposures and how to address these.
- It is clear from our interaction with both our local regulator and now also in these global forums is that associations such as the FIA must take proactive ownership of our future – once of course we have consensus as to how this future will look like – and drive our agenda so that regulatory bodies can engage with us , before promoting particular ideologies or goals – which could impact negatively on our future viability and sustainability .
- Influencing global regulatory agenda’s will be positive not only for intermediaries globally but by implication our own local interests ( In this case the FIA are also held to be the representative of African Insurance interests and not only South Africa interests (From a WFII viewpoint )
Primary objectives for the FIA following this interaction:
- Our stance must change from reactive to proactive particularly with regards to our future roles both from a member viewpoint (the continued relevance and financial viability of intermediaries ) and from an association point of view : we can play a substantial role in expanding the importance of the intermediaries role not only from an insurance point of view but also in terms of our ability to contribute to other socio economic issues facing South Africa.
- There is a general lack of factual evidence on which significant regulatory reform is being based on or proposed – we can enhance our standing and negotiating positions by ensuring we base our engagements on hard facts and not heresy or market truisms which are generally un-validated points of view which over time become held as facts.
- Our observations and interactions with our global counterparts convince us of the validity of our proposed strategic direction and in the words of the Managing Director of the WFII , based on his own observation of the African contribution of the FIA – we should not think we are , as a relatively small player for a developing continent, behind the curve – in fact in some cases such as our identification of the emergence of technology as both a threat and an opportunity for intermediaries is ahead of the curve – which is a huge compliment given that the membership base includes representation from the top developed nations across the globe. We would be remiss in not driving the enhancement of this perception across both the WFII and the international regulatory bodies.
- To continue to thrive and add value to intermediaries – the FIA must grow it’s membership base and it must ensure it has the organisation capacity to proactively position as an association which understands the evolving environmental dynamics and is preparing our members for these changes, which are starting to occur in greater numbers and increasing frequencies.