FSB smacks Old Mutual's wrists

The Directive sets out the requirements with which insurers must comply when outsourcing an aspect of their insurance business to another person or company.

In a statement‚ the FSB said the regulatory action was necessary as:

• Old Mutual's remuneration practises in respect of its outsourcing of broker consultant services (its Servco model) was found not to be reasonable and commensurate with the actual functions or activities outsourced as required under the Directive;

• Old Mutual's business relationship/s appeared not to comply with the requirements of the Directive in respect of conflicts of interest‚ as the agreements entered into are silent on the avoidance or mitigation of conflicts of interest and no evidence as to how compliance with these requirements are achieved was made available to the Registrar.

"Appropriate remuneration practises and the avoidance of conflicts of interest are two cornerstones in achieving the fair treatment of existing and potential policyholders and ensuring adequate and appropriate consumer protection.

"The Registrar has therefore directed Old Mutual to submit a plan detailing the corrective action that will be implemented to achieve compliance and the timelines for implementation of the plan‚" the FSB said.

It added that the Registrar was also considering referring the non-compliance to the FSB's Enforcement Committee which referral might result in the imposition of a financial penalty.

The Registrar was also investigating non-compliance with the Directive by other insurers when outsourcing broker consulting services.