Peter Olyott, CEO, Indwe Risk Services
If the events of 2021 have taught us anything, it’s that the role of the intermediary is as crucial as ever, but there is cause for concern.
It’s no secret that current regulations favour clients who deal directly with the product provider, and not those working through an independent intermediary.
The independent intermediary is held to a higher standard of objectivity and subject matter expertise than that of the tied agent who works directly and solely for the product provider. The tied agent is obliged to be explicit regarding their products but is under no obligation to compare it to other products in the market, or to consider products they don’t produce, including alternative risk finance or management solutions. If this is indeed the case, then where does this leave the independent intermediary?
Despite attempts to simplify risks, individuals and businesses face a multitude of growing complex risk exposures. Some of these can be insured. And some are not dealt with for various reasons, including being outside of the direct influence and management capability of an individual or business, and others because they are not yet provided for in the traditional insurance market. A client, therefore, expects to receive independent, objective, and relevant advice, and for the adviser to assist in the interpretation, evaluation, and recommended treatment of these risks.
The main issue is that the independent adviser can accurately convey the differences between advice and product information. Advisers must also demonstrate both skill and expertise by undertaking a thorough and detailed risk assessment, and to draw the client’s attention to the limitations of an insurance-only solution – no matter how comprehensive or keenly priced an insurance product may be.
While many advocate that clients purchase insurance for so-called peace of mind, such a statement can lead to a false sense of security depending on the depth and extent of the risk discussion between the intermediary and their client. There are untold tales where policies have responded somewhat differently to the expectations of both client and intermediary alike, rudely bursting the peace-of-mind bubble when the insurance has only been structured on some basic policy information provided to produce a rate and a premium.
Where the claim is for a few thousand rand, this statement may not be as noticeable, and a sound relationship between the intermediary and the insurer may help one get over the line. However, when claims reach into the tens or hundreds of millions of rands, that is when one can determine the soundness of the advice and solutions. Unfortunately, at this point it may be too late.
It is clear to me that independent advisers will need to up their game in terms of product knowledge and understanding; their knowledge and understanding of risk management; the interpretation of risk analyses; and most importantly, their knowledge and understanding of their client’s desired lifestyle or the client’s business where their company is concerned.
It is intriguing to learn of significant businesses insured where it is clear that the adviser does not understand the client’s business nor the sector in which they operate. While fundamentals hold across many businesses, it is also true that some risks are unique to particular sectors or specific businesses, and, therefore, a standard off-the-shelf offering, no matter how “wide and comprehensive” the wording will not pass muster.
As risks and client environments become more complex it will become imperative to ensure that records of risks identified, evaluated, and treated are kept electronically, particularly when uninsured and uninsurable risks are concerned. This particular point is contentious, as the client (individual or a business) believes they are dealing with an insurance expert (independent adviser or a tied agent). The belief is that there is an equal onus on the intermediary to discuss both uninsured and uninsurable risks, whether the particular product provider supplies a particular risk or insurance solution or not. At this point, there is no conclusive evidence that this responsibility does not exist.
What both Covid-19 and the civil unrest in KwaZulu Natal and Gauteng have taught us, is that the scope and depth of our risk discussions and potential solutions with our clients will have to be far greater than in the past. Covid-19 may have been a surprise, and just about every policy of insurance now excludes contagious diseases, but that does not mean the risks have evaporated along with their deletion from mainstream policies. The risk remains and new similar risks lurk around the corner. The question is, what are intermediaries doing to ensure that these future risks are catered for, even if not through the conventional insurance solutions?
What these events have taught us, particularly regarding the business interruption claims arising from both Covid-19 and the riots in KZN, is that advisers must enhance and improve their knowledge and understanding of some key catastrophe-type insurance covers, as a failure to do so can have catastrophic consequences for both the clients and the advisors concerned.
It is, however, this increasing complexity in the world that tilts the balance in favour of the informed, professional, and astute adviser. On the other hand, if the insurance game is reduced to price and some marketing benefits, then advisers, in particular the independent advisors, should be concerned.