Background to Protection and Legislation in the Insurance Industry
Much has been done in the past few years to protect the insured car owner through legislation. The Policyholder Protection Rules supported by the Financial Advisory and Intermediary Services Act have made a significant contribution towards quality financial advice.
Many short term brokers who were not delivering professional advice have been removed from the market as they simply could not adhere to the compliance requirements they had to meet!
These changes during the last 10 years have delivered a much more professional financial services industry and reduced bad advice. Next year we will find more protection for consumers under the Consumer Protection Act
National Treasury announces New Rules and Legislation in Mini-Budget Statement
It is not only at individual level that the insured vehicle owner will benefit from legislation and regulatory protection. There is also now a broader focus on the big role players and insurance companies to ensure that these companies are financially able to meet their promises!
The National Treasury has announced a broad reform of rules and regulations in the financial services sector. The regulations are aimed at beefing up the stability of banks and insurers, as well as bringing previously under-regulated products such as derivatives and hedge funds, under a single Financial Markets Bill.
The following proposals will be presented in a discussion document for public comment:
* Focus on the entire system, rather than the risks of individual institutions. This “macroprudential approach” will be implemented by the Reserve Bank.
* Establish a Council for Financial Regulators. This council, which would be jointly chaired by the finance minister and the Reserve Bank governor, would oversee all regulatory agencies in the financial sector. It will promote “co-ordination and information sharing between regulators, particularly in the case of diversified financial services conglomerates”.
* Prudential regulation of banking and insurance. Stricter financial requirements will be imposed on banks and insurers, including capital requirements, liquidity and leverage ratios. This will be in line with international best practice.
* Entrenching regulator independence. A number of initiatives are planned to improve the accountability and governance of domestic financial regulators. Government will set the policy and ensure that regulators are operationally independent and that they act without fear, favour or prejudice.
* Banking fees and transparency. The Competition Commission’s investigation into South Africa’s banks set out a number of recommendations to lower banking charges and introduce transparency to pricing. These recommendations are currently being implemented by the Treasury and the Reserve Bank. The Treating Customers Fairly initiative from the Financial Services Board is also seen as an important step in improving the behavior of financial services players.
* Bringing hedge funds and derivatives brokers into the net. Treasury proposes to replace the existing Securities Services Act with a Financial Markets Bill and also releasing a Credit Rating Services Bill. This aims to bring under-regulated products like hedge funds and over-the-counter derivatives into the regulatory framework.
* Broadening access to financial services. National Treasury says it “plans a number of new interventions to ensure financial services reach more people”. This includes steps to “convert the Financial Sector Charter into a code, supporting the development of co-operative banks and providing mechanisms for increased competition in the formal banking arena through dedicated banks and the introduction of deposit insurance.”
[Info on Mini-Budget Statement from Moneyweb]
Conclusion
Insurers will agree that quality service and professionalism is required in the insurance industry. This will support competitive behaviour and contribute towards respect between insured clients and their insurance providers. Even though this could add further pressure to the costs of compliance – it could also reduce complaints and ensure greater trust in the industry, ultimately benefitting both clients and car insurance companies!
The proposed Consumer Protection Act could be delayed says law firm Webber Wentzel . This Act will have a significant impact on the way that Car Insurers do their business and interact with consumers. There is however concern that the implementation of the Act at the proposed date will be inappropriate.
It is with bated breath that I listen to stories of accidents. I fear, not only for loss of life and bodily injury, but also for the financial impact of such vehicle crashes. We always ask the dreaded question “Is your car insured?” – And too often do we find the answer to be “NO!” According to the South African Insurance Association only 30% of vehicles on South African roads are insured!