SAIA welcomes FSB’s Retail Distribution Review

Johannesburg - The South African Insurance Association (SAIA) today confirmed that it welcomed the release of the Financial Services Board's (FSB) Retail Distribution Review (RDR). The paper proposes 55 policy decisions that will be considered by a SAIA RDR Task Team. The SAIA's General Manager: Legal, Adv. Suzette Olivier confirmed that this paper is in line with the new outcomes-based approach to regulation of the FSB created on an activity, risk-based and proportionate model of regulation. The deadline for comments on the document is 2 March 2015.

The South African Insurance Association (SAIA) today confirmed that it welcomed the release of the Financial Services Board's (FSB) Retail Distribution Review (RDR). The paper proposes 55 policy decisions that will be considered by a SAIA RDR Task Team. The SAIA's General Manager: Legal, Adv. Suzette Olivier confirmed that this paper is in line with the new outcomes-based approach to regulation of the FSB created on an activity, risk-based and proportionate model of regulation. The deadline for comments on the document is 2 March 2015.

Olivier explained that the document is also consistent with the National Treasury's (NT) policy objective to promote better access for South Africans to affordable insurance products. The RDR proposes additional consultation and technical work to be undertaken to determine appropriate remuneration for product suppliers and intermediaries serving low-income customers.

One of the key structural changes is an enhanced responsibility placed on product suppliers. This is to ensure the delivery of the Treating Customers Fairly (TCF) outcomes by product suppliers for their chosen distribution channels.

Additional structural changes are proposed on advice, intermediation, sales activities, ongoing product maintenance and servicing, aggregation and comparison services, services to product suppliers such as binders and other outsourcing activities, remuneration for these activities and the related impact on the distribution of financial products. The paper confirmed that the current commission caps would be reviewed.

The current maximum commission payable in the short-term insurance industry is 12.5% on motor and 20% of the premium for all other classes. A further policy recommendation is the introduction of a product advice fee which will not be regulated and may be upfront or ongoing. Associations may however publish benchmark guidelines to assist consumers when the fee with advisers is agreed upon.

The three types of advisers proposed are:

Independent Financial Advisers (IFA) offering advice on multiple products free of product supplier influence;

Multi-tied Financial advisers who will be required to be licensed in their own right to provide advice on a range of products from product suppliers; and

Tied advisers restricted to providing advice on the products limited to one supplier or group only.

In addition to reviewing the current commission caps, further regulated pricing caps are proposed for binder fees and outsourcing fees payable to advisers.

Adv. Olivier said that the paper confirmed the FSB's support of "sustainable business models to deliver fair customer outcomes over the long term"

In addition, the RDR also puts forward proposals to address the inherent conflict of interest in the current model that results in the potential for adviser remuneration to distort customer outcomes.

"The insurance industry is currently undergoing extensive regulatory reform to bring South Africa in line with international standards such as the G20 standards and the core principles adopted by the International Association of Insurance Supervisors. The phased-in approach and transitional periods proposed by the FSB will allow the industry to put in place plans to modify business relationships and models to implement the changes, which are welcomed."

"The SAIA under the leadership of our Chairman, Mr Themba Gamedze, is engaging with the FSB and the NT, as we partner towards effective and appropriate regulation of our industry. As the SAIA, we support the ultimate aim of RDR, which is to improve customer confidence in the financial services industry," concludes Adv. Suzette Olivier.