“I think it will be a fit-for-purpose model and has created the ability to propel the entire industry into a more open marketplace with the inclusion of micro-insurers. This alone will produce a breeding ground for a more market-friendly environment and will also mean that the industry must focus on the service to their clients and what they can bring to the table," says Mohammed Patel, Old Mutual Insure’s head of regulatory risk & compliance.
Towards the end of last year, then-President Jacob Zuma signed into law the Financial Sector Regulation Bill, which saw the South African Reserve Bank (Sarb) take over a prudential regulator role. With this, the central bank will effectively govern, from a prudential aspect, all financial institutions such as insurers and banks.
On the other side, the Financial Services Board (FSB) is transformed into the Financial Sector Conduct Authority (FSCA), a dedicated market conduct regulator. This is a move to strengthen consumer protection and overall market conduct and to create a more stable financial sector within the country.
“What Twin Peaks effectively means is that all financial service providers will be governed in the same way. Instead of regulating banking in a certain way and the insurance sector in a different way, we have to understand that they form part of the same systemic risk and should thus be regulated equally,” explains Patel.
The Insurance Act provides the legal framework for the creation of a fair, safe and stable insurance market. It also replaces certain parts of the Long-term Insurance Act, 1998, and the Short-term Insurance Act, 1998.
“It is the final measure for insurers to address the regulatory remediation necessitated by the 2008 financial crisis which depressed markets worldwide. The reality is that the implementation will impact the ongoing viability of insurers should they fail to meet the financial soundness requirements. This will certainly create opportunities for insurers who are financially stable and able to absorb the risks underwritten by these insurers,” he says.
The new Insurance Act aims to:
The Act also introduces the legal framework and less stringent requirements which will allow micro-insurance to promote financial inclusion. “This is a positive step towards providing South Africans with more affordable insurance that is accessed by the low-income population,” concludes Patel.
