The long-standing battle by the Council for Medical Schemes to have gap cover and hospital plans clearly demarcated as insurance, and not medical products, is indicative of its determination to ensure that clients are not provided with confusing information.
A recent article, Commission on Healthcare Products, published in the Moonstone Investment Indicators, drew responses from a number of financial advice professionals in this field.
It is quite evident that the provision of financial advice and intermediary services in respect of healthcare products do not differ in any significant way from those products resorting under the Insurance department of the FSB. Healthcare professionals are as liable for compliance with the FAIS regulations as any other financial advisor, and face the same increased financial burden due to this obligation.
During the 2013 Insurance Regulatory Review, the Insurance department of the FSB presented the latest news on the Retail Distribution Review (RDR).
In its assessment of the current landscape, it acknowledged that “The SA financial services distribution landscape is complex and characterised by a wide range of models.”
It then identified three risks that need to be considered when reviewing current distribution remuneration models:
Risks to customers
- Conflicts of interest
- High (sometimes hidden) impact of intermediation/advice costs on product value
- Often opaque accountability for quality of advice and customer outcomes
Risks to intermediaries
- Not always properly remunerated for advice
- Value of intermediaries’ services not properly recognised
- Up-front commission not a sustainable business model
- Inappropriate incentives expose intermediaries to regulatory risk
Risks to effective supervision
- Imbalances in product supplier/intermediary responsibilities
- Standards for intermediaries not always proportionate
- Some products and related advice fall outside the regulatory net
Becoming a member of a medical scheme does not really differ very much from taking out short term insurance in that it provides you with a safety net in case of an unforeseen event.
Both disciplines require exactly the same actions from the intermediary: sales, annual reviews, assistance with claims and so forth. Why should there be such a vast difference in their remuneration? Healthcare commission is 3%, with a cap of R69. Short-term insurance commission ranges between 12.5% (for motor policies) and 20% (for other Short-term Policies).
In my personal experience, there are far more healthcare events requiring advice from my broker than there are short-term ones.
We recently saw the publication of a directive to provide clarity on what the FSB regards as “conflicted remuneration.” I will not be surprised if such practices also exist in the healthcare industry.
One of the outcomes of the implementation of the Twin Peaks model of regulation is that market conduct of banks will no longer be regulated by the Reserve Bank, but by the FSB. This will, necessarily, require legislative changes.
Would it be too much to ask that the same happens as far as healthcare providers are concerned?
- This will open the door for uniform regulation of all providers of financial advice and intermediary services, in the interests of consumers.
- The authorities envisage making it obligatory for all financial advisors to belong to a professional body. Annual accreditation with the CMS will be nothing new to healthcare advisors.
At the Insurance Regulatory Seminar, the FSB highlighted five key proposals:
- The need to move to a component / activity-based approach to regulating advice and intermediation
- Clarification of contractual relationships for different forms of intermediation to avoid consumer confusion
- The need for remuneration to be linked to an activity-based approach
- Addressing “Conflicted remuneration”
- A review of the FAIS framework
All of this applies as much to healthcare as it does to the rest of the industry.
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