What does Twin Peaks Mean for the ST Insurance
Industry?
ISMAIL MOMONIAT
DDG: TAX AND FINANCIAL SECTOR POLICY
(email: ismail.momoniat@treasury.gov.za)
THE INSURANCE CONFERENCE 2012, Sun City
| National Treasury | 12 June 2012
G20 Response to 2008 Financial Crisis
• G20 focus has been on strengthening macro-prudential and
micro-prudential measures.
– Financial Stability Forum transformed into Financial Stability
Board.
– South Africa represented on Fin Stab Board.
– Focus on systemically important financial institutions (SIFIs),
both global and domestic.
– Initial focus on banks, but now also on insurance sector.
• G20 has also adopted principles on consumer protection and on
innovative financial inclusion
– Three pillars of protection, access and education
2
South Africa’s Response
• Greater focus on macro-prudential risks and establishment of
Financial Stability Oversight Committee (FSOC) jointly chaired by
Min of Fin and Governor of SARB.
• Shift to twin peaks system of regulation, with prudential
supervisor under SA Reserve Bank, and Fin Services Board
transformed into a market conduct supervisor.
• Operational independence of supervisors.
• New legislation for twin peaks in 2013, but already implementing
many measures even as we prepare for twin peaks
• Complementary measures on consumer education and financial
inclusion
3
Implications for ST Insurance Industry
• Prudential supervision will be strengthened through
implementation of SAM framework.
• Strengthening supervision over groups.
• New legislation this year includes upcoming Insurance Laws
Amendment Bill, Financial Services General Laws Amendment Bill
etc
• Pending legisalation next year to implement twin peaks system
• Pending legislation next year to improve the design of the ombuds
system and ensure that it operates independently, without any
interference, and includes governance and funding reforms
4
PRUDENTIAL COMPLIANCE IS CRITICAL, BUT FOCUS
MUST BE ON CUSTOMERS!!!
• NT view is that the ST Insurance market conduct practices are poor.
• NT view is that our supervisors must be much TOUGHER than they have been
in the past.
• Insurance will only be exempted from the Consumer Protection Act if the
industry adopts HIGHER and TOUGHER standards.
– Industry must EARN the right to exemption, by demonstrating superior
market conduct practices.
• Why should government consider compulsory insurance for say motor vehicles
if the industry is not transparent about its costs and claims procedures?
– Has the industry really looked at how it can provide more affordable
policies?
• TCF is just the start, and business models must do more to incorporate it’s
principles, and break from past practices
5
NT CONCERNS
• Most ST insurance companies are not really prepared to
incorporate TCF principles in their practices, and are still stuck to
a compliance-based approach
• ST Insurance industry is behind the curve on its focus on fair
treatment of customers.
• Dubious industry practices and defaults for example:
– only revising motor car value if prompted, compulsory alarm
provisions for households etc
– principles of proportionality and fairness not applied in many
cases, as system is designed to reject claims in total
• NT considering comments on health insurance & med schemes
demarcation - if insurers want to compete then must do so on
same terms as medical schemes – no cherry picking good risks!
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Obliging greater transparency and consumerfriendly approaches
• NT believes that market conduct supervisors must move swiftly to
oblige public disclosure on relevant information, including on
claims received, claims rejected for each company.
• Supervisors will have the powers to force compliance and higher
standards.
• We need more simplified products with standard terminology and
comparability.
• Defaults must be changed to support customers
• Ensuring that all players are FIT and PROPER at ALL times
7
Some Current Challenges
• How does the industry become more accessible to the low-income
market?
– Micro-insurance?
• Does the industry have more affordable products for the small
businesses?
• How can the ST industry commit to tougher Financial Sector
Charter targets?
8
Reforming the Ombud System
• NT does not believe that industry ombud is sufficiently independent in
ST Insurance Industry.
• Governance and funding over ombud must be free, and SEEN TO BE
FREE, from any interference.
• NT considering a system of compulsory levies to fund the operation of
ombud offices, together with minimum norms and standards.
• Appointment and re-appointment processes of ombud must be free
from interference.
• The number of complaints going to the ombud reflects on the failings of
internal complaints procedures of companies.
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Beyond Mkt conduct: Has ST Insurance really
transformed to reflect the new SA realities?
• The ST Industry appears to be stuck in past practices.
• Is the industry really open to new challenges & change?
• Are ST insurance products appropriate for the needs of township
dwellers, funeral needs, younger market?
• Are pricing models really free from redlining? Who subsidises
who?
• Is there sufficient new blood entering the leadership ranks in the
insurance industry?
• Can we open up a dialogue to reform and modernise the shortterm insurance industry?
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Thank you