In just 36 months there has been a 63% increase in the number of Acts of Parliament with which the life insurance industry must comply. Little wonder that they now employ so-called Compliance Officers at great cost to their clients and shareholders alike.
There are three very serious concerns regarding the escalating legislation:
A frightful new piece of proposed legislation has appeared under various aliases but is now called The Financial Advisory and Intermediary Services Bill (FAIS). There are glaring flaws in the new Long and Short Term Insurance Acts, the Financial Services Ombudsman Scheme Bill, the Investment Services Bill, and the Financial Intelligence Centre Bill, among the vast array of new laws bearing down upon the Industry. However, FAIS epitomises the disease with which each is infected:
The new FAIS Bill did not originate from any industry body or from the FSB itself. It appears to have been conceived by the Policy Board for Financial Services. Of particular concern with the FAIS Bill is that Pretoria has not attempted to establish a level playing field between all financial service providers, including the banks and Unit Trust companies. FAIS is aimed almost exclusively at the insurance industry. Does the omission result from simple ignorance, or is it perhaps expedience? Is it a matter of Get control of the soft, compliant, insurers first and then work on the intransigent banks later? No one is saying.
The red herring of FAIS is the appeal to the blood: Let us rid ourselves of the unscrupulous and incompetent fly-by-nights who taint the industrys reputation! Of course, who could disagree? But the issue at the heart of FAIS is much more a matter of: Let us (the regulators) get control of the insurers through the soft underbelly of their distribution systems, through their agents and brokers. Get control of these activities and we have automatic control over the industry as a whole! If this were not so, we would now be looking at a simple intermediary education and registration Bill, not the monster before us.
This is not conspiracy theory. This is exactly what has happened in the UK and in Australia and appears to go a long way to explaining the reluctance on the part of Pretoria to produce any kind of research material into what has happened in those countries. Yet no one in South Africa has yelled: But we do not suffer a reputational problem anywhere near as bad as is being made out!
During 1999 the Life Offices association (LOA) and the FSB independently commissioned research projects and both independently produced almost identical results: Less than 9% of policyholders that had lapsed a policy in the previous three years had done so because they believed that they were given bad or incompetent advice. This figure is borne out by statistics from the Office of the Life Ombudsman. Last year just 5,9% of settled complaints were wholly or partly for alleged mis-selling. This was down from 8% in the previous year. Well under 10% of people who complain or who lapse their policies do so because of unscrupulous or incompetent intermediaries and this translates into less than 2,5% of people who buy insurance every year. Yet the claim is made that we have an acute need for all this new legislation.
The so-called Subordinate Legislation or Regulations (perhaps more accurately described as secondary law) required to make FAIS work already runs to nearly 500 pages. This means one thing only: The real law is not to be contained in the Act, as it would be too difficult to get through Parliament. It is to be contained in regulation that can be changed at the discretion of whoever happens to be in the FSB in Pretoria from time to time in the future. Creating such a high level of uncertainty in an important industry is highly unsatisfactory.
The Memorandum of Objectives attached to the FAIS Bill merely says that a new, regulated profession is to be established. No reason is given as to why this new profession is necessary or even desirable. Perhaps this is because any attempt to justify it on current empirical grounds would most certainly fail.
Tony Blair and Bill Clinton both introduced legislation that requires that any new Act or amendment has to be accompanied by an impact assessment report before it can be passed into law and that if this report is improperly done, the Courts can subsequently set the new law aside. We are in dire need of such legislation in South Africa.
Source: Dr Brian Benfield, who is visiting Professor of Insurance and Risk Management at the University of the Witwatersrand. This article may be republished without prior consent but with acknowledgement. The patrons, council and members of the Foundation do not necessarily agree with the views expressed in the article.
