Embedding TCF in the insurance regulatory framework

The presentation by the FSB focussed on how the six desired outcomes of treating customers fairly will impact on the industry. For this discussion, we will only focus on three which will affect our readers more directly:

Outcome 2 – Products and services
The Current focus is on consumer credit insurance, with the following products earmarked for future attention:

  • Complex linked products
  • Group schemes
  • Extended motor warranty business
  • Legal expense insurance
  • Review of inducements and loyalty schemes
  • Unfair contract terms – through new Policyholder Protection Rules

It appears that the Regulator is being led by the current realities in the industry, and where it experiences more problems with unfair treatment of customers. The increased focus on consumer education aims to shift the focus from promoting, or selling, to the provision of products which addresses the clients’ identified needs. This is very much in line with why the FAIS Act was introduced – to enable clients to make an informed decision, rather than being coerced into products which may not be the best option.

One such issue will be the introduction of key information documents as part of the disclosure requirements which will allow clients and advisors to compare products fairly in terms of key aspects.

Outcome 3 – Disclosure
Matters currently under the microscope are:

  • Key Information Documents (KID’s)
  • Standardised terminology
  • Guidelines on advertising and marketing

Future reviews will include:

  • Customer specific disclosure standards
  • A review of product aggregation and comparison services

A settlement published in the latest annual report of the FAIS Ombud confirms that the days of only the advisor being held liable for client losses are drawing to an end. The reviews listed above make it clear that product providers will play a far more important role in clarifying exactly what a client is buying. They will also be held liable where they fail to do so.

Outcome 4 – Suitable advice
This is the one outcome of TCF which will affect financial advisors most. The Review of Retail Distribution (RDR) is currently nearing finalisation. We commented before that the approach by the FSB in this sensitive matter has been exemplary in terms of communicating with the industry.

This topic warranted a presentation of its own at the Regulator’s annual regulatory seminar, and will be discussed in more detail in a separate article soon.

The key proposals announced in terms of RDR involve:

  • A move towards a component/activity-based approach to regulating advice and intermediation
  • Clarifying contractual relationships for different forms of intermediation to avoid consumer confusion
  • Linking remuneration to an activity-based approach
  • Addressing “conflicted remuneration” and
  • Reviewing the current FAIS framework

It is heartening to note that the Registrar is taking cognisance of problems experienced in the UK and Australia where reviews of distribution methods are currently being implemented. There is consideration for local realities, and we believe that, in conjunction with the industry, workable solutions can be found.

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