News Africa16 Dec 2019

South Africa:Rule changes will axe number of traditional intermediaries

| 16 Dec 2019

Recent and upcoming changes in the insurance regulatory landscape will shake up traditional distribution channels in South Africa, leading to a decline in the number of traditional insurance intermediaries, says Ms Nicole Britton, senior associate at global law firm Clyde & Co.

In her forecast carried as part of Clyde & Co's Insurance Predictions 2020 series, Ms Britton says that the main drivers behind this predicted trend are:

♦ The introduction of a maximum amount of fees payable to binder holders (cover holders), which will reduce the consideration which they can charge for such services;

♦ Increased compliance costs for such intermediaries due to:

  • the introduction of minimum governance, risk management and internal control frameworks which must be established and maintained by the intermediary; and

  • forthcoming requirements imposed on binder holders when rendering services to ensure integration between the information technology system of the intermediary with that of the insurer to enable access to up-to-date and complete client data as and when requested by the insurer; and

♦ Reduction in the amount of monies which can be earned by premium collecting intermediaries due to:

  • a change from the traditional premium collection model through the introduction of direct premium collection by insurers; and

  • new legislation will also preclude intermediaries from holding premiums for a period longer than 45 days, and from keeping any interest earned on premiums.

These changes come at a time in South Africa when the introduction of digital distribution models is growing and becoming a main method of insurance sales by many insurers. Digital platforms are gaining increasing recognition, including being recognised by the regulators who now specifically regulate the provision of automated advice. As a result, traditional intermediaries are increasingly being bypassed and their numbers will fall in 2020 and beyond.


 

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