This article was first published by Business Day on 12 February 2025
In August 2022 SA’s Competition Commission launched a surprise “dawn raid” on the offices of no fewer than eight SA insurers. The operation, described by some as resembling a Hollywood-style spectacle, was reputedly undertaken without prior consultation or notification to the relevant regulatory bodies — the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA).
These “twin peaks” regulators have statutory mandates to oversee SA’s financial sector, including insurance and banking. They are tasked with ensuring the fair operation of markets within these industries and have excellent staff, who are good people but may perhaps lost sight of their central purpose.
The Competition Commission’s stated aim was to investigate alleged price-fixing and collusion among the insurers. The raid quickly attracted attention, with the Black Business Chamber issuing a swift statement welcoming the investigation. The chamber decried the alleged corruption within corporate SA, describing the sector as “highly infested with corruption and gatekeeping”.
It also criticised the generally insufficient penalties imposed in such cases, arguing that they fail to adequately address the harm done to SA’s economic “transformation trajectory”. The SA Federation of Trade Unions (Saftu) also was quick to climb on the bandwagon, with an apparently pre-prepared statement saying they “strongly suspect” the allegations are true.
However, while Saftu and the Black Business Chamber’s stance was to quickly support the investigation, the Competition Commission’s decision to proceed without engaging the FSCA and PA inadvertently illuminated deeper, structural issues within the SA insurance sector. Had the commission properly consulted these regulators, it might have learnt that commission rates within the sector are indeed fixed — a practice that runs counter to the very principles of competition that the commission is tasked with upholding.
Ironically, some of the alleged collusion the commission seeks to address is actively facilitated by a regulatory regime that enforces price controls on the distribution of insurance policies. This entrenched price-fixing practice, originally but mistakenly intended to ensure fairness, has been widely criticised as outdated, unfair and detrimental to the broader economic environment.
The origins of this regulatory framework can be traced back almost half a century. Over time both the FSCA and its predecessor, the Financial Services Board (FSB), maintained a firm position in favour of fixing commission rates. Despite the global trend towards deregulation and market-driven approaches, SA continues to stand as an outlier, persisting in its price-fixing practices. The FSB attempted to phase out such regulations more than 25 years ago, but the initiative was met with political interference. Furthermore, even the National Treasury acknowledged in a 2006 discussion paper the growing international consensus against regulating commission rates, yet SA has maintained this policy.
This outdated framework has profound consequences for the SA insurance market. Analysts consistently highlight that it perpetuates significant structural inequities, particularly affecting black brokers and agents. Aspiring black business owners face substantial barriers to entry, hindering their ability to compete with established players. This systemic disadvantage stifles the growth of black-owned brokerages and undermines the nation’s broader economic transformation agenda. In fact, many industry experts argue that the continuation of this price-fixing practice could be seen as a violation of existing competition laws if subjected to legal scrutiny.
Since the dramatic raids more than two years ago the Competition Commission has remained conspicuously silent regarding the progress of its investigation. There has been no substantial update on whether any evidence of price-fixing or collusion has been discovered. The prolonged silence raises serious questions about the efficacy of the commission’s approach and whether it is addressing the root causes of anticompetitive behaviour in SA.
This lack of transparency and progress underscores the need for the Competition Commission to engage in a more meaningful dialogue with the FSCA and PA. Collaboration between these regulatory bodies would provide a more holistic and nuanced approach to the challenges facing the SA insurance sector. If these regulators worked together to dismantle the outdated regulatory framework that enforces fixed and manipulated service prices, they could help align the market with international best practices and foster greater competition and efficiency. Such co-operation would also serve to reduce the regulatory burden on the authorities, simplifying their operations and lowering their costs. It would simultaneously lower overall industry costs.
Shifting towards market-driven mechanisms, rather than continuing with price controls, would not only enhance market fairness but would also create a more level playing field for all participants in the insurance industry, particularly emerging intermediaries. The removal of fixed commission rates would allow brokers and agents to negotiate commissions based on market conditions, which would foster a more competitive and dynamic environment. That is likely to lead to lower prices for consumers and more efficient resource allocation within the sector.
Moreover, embracing a market-driven model would have significant implications for SA’s broader economic growth objectives. By removing barriers to entry for black-owned brokerages and enabling greater participation in the insurance market, such reforms would contribute to a more inclusive and equitable economic landscape. Aspiring entrepreneurs would have greater opportunities to succeed, facilitating the growth of a more diverse and competitive industry.
Ironically, the Competition Commission’s raid has exposed the limitations of the present regulatory framework. A more forward-thinking approach — one that tackles anticompetitive practices and outdated regulatory structures — would create a more equitable, competitive, fair and dynamic insurance sector. Through collaboration with the FSCA and PA, the commission could spearhead reforms that not only align SA with global best practices but also promote economic inclusivity and reduce regulatory inefficiencies.
By dismantling anachronistic price-fixing regulations and embracing market-driven competition, SA’s insurance industry could experience a new era of growth, innovation, and fairness, ultimately contributing to the country’s broader economic goals.
