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We have enough regulation; what’s lacking is enforcement

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FIA CEO, Lizelle van der Merwe, and president, Peter Olyott, attended the WFII meeting in Lisbon as representatives of the Southern African intermediary community. They brought back some amazing pearls of wisdom from some of the world’s leading thinkers and doers in the intermediary sector. They also focused on building international networks to better represent our intermediaries on the global stage.

Gabriel Bernardino, chairperson of the European Supervisory Authority (EIOPA), delivered the opening address at the recent World Federation of Insurance Intermediaries (WFII) World Council Meeting in Lisbon. Bernardino spoke on developments in regulatory and supervisory issues in Europe from an intermediary perspective. Many of the issues he touched on are relevant not only in Europe, but also here in South Africa.

Bernardino’s talk covered several key topics in the context of supervision and regulation, including cross-border business, digitalisation, data and cyber risks, and the continuing importance of advice in the global insurance ecosystem.

“If intermediaries want to do business in other countries, it’s important that regulation supports the building of trust and confidence with consumers,” he said. “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. This is a significant factor when looking at international investments.”

Bernardino highlighted the importance of the intermediary as supervisory focus shifts from prudential to market conduct.

“The role of the intermediary is very important as they are the first line of defence with the consumer,” he said.

One of the major areas of concern is the need to adapt regulation to digitalisation. It’s not just about the evolution of business, he said, but the reality of insurance disruption.

“Obviously, to give real effect to these, insurance regulation needs to be 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 a human interface to help decode the process for policyholders.”

Two of the biggest concerns are big data and cyber risks.

“EIOPA is going to focus on the way big data is used for underwriting, how it will impact the price of insurance and underwriting of risks,” said Bernardino. “Cyber disruption and attacks require a collective effort by all stakeholders, including intermediaries, to address this risk.

“We are currently busy with a thematic review on big data – interrogating how it is being used, the influence it will have on price and what the ethical issues are – as well as how different supervisors are approaching these kinds of risks in conjunction with market stakeholders.”

Bernardino stressed the importance of the intermediary in the future of insurance, adding that, “… 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, we will be unable to communicate our views and support them in terms of how our role needs to change. This would leave us at sixes and sevens with regulators, who could end up intervening in the intended strategic direction of the industry.”

Bernardino identified two main elements for intermediaries:

“Firstly, make sure clients understand insurance and what risk is being transferred. There will always be underlying complexity in insurance. The human face with an explanation is key and will be fundamental going forward. Secondly, make sure customers understand the economic importance of managing their risks closely, as well as the prevention measures that can help them to do so. Digitalisation is a useful enabler in this regard.”

One of the downsides of technology – in particular how it has made communication so easy and immediate – is that we are flooding customers with too much information, said Bernardino.

“We need disclosure,” he said, “but, it must be fit for purpose and should build confidence and trust in the sector. Providing consumers with so much information is proving costly for all stakeholders.”

With regards to supervision, Bernardino called for a more proactive approach.

“Supervision needs to be preventative,” he said. The world is changing and everybody needs to be proactive, including the supervisor.

“We have enough regulation; what is lacking is enforcement.”

He ended his talk with the famous Stephen Hawking quote: “Intelligence is the ability to adapt to change” – adding his own extension “… not tomorrow, but today!”