Don’t fall into the trap of complacency
2018 was a year where a few new trends started to emerge within the financial services industry. These trends would exert such an influence on the industry that many businesses were forced to relook at business and distribution models to establish whether they were still appropriate. These changes will continue to occur in 2019. However, insurers and brokers now know what they are dealing with and can anticipate some of the effects of this change.
According to a report by global auditing firm Deloitte, there are a few mega trends which will still exert a lot of pressure on some insurers in key markets.
The regulatory bulldozer
The Deloitte report points out that insurance regulators globally are broadening their focus from solvency to include market conduct oversight as regulation (developed in the wake of the last financial crisis and aimed at reducing systemic risk) nears final adoption.
In the United Kingdom, the Financial Conduct Authority (FCA) is researching consumer needs, attitudes and behaviour to set out an overarching strategy: Our Future
Approach to Consumers. In addition, the International Association of Insurance Supervisors (IAIS) has said market conduct will be a focus of its upcoming five-year strategic plan.
Regulatory reform in the UK has set the tone for similar changes in other markets. Following the implementation of Treating Customers Fairly (TCF) in the UK, the Financial Sector Conduct Authority (FSCA) implemented the same legislation in the South African industry. Other key regulatory changes were the beginning of the phased implementation of the Retail Distribution Review (RDR) changes to the Policyholder Protection Rules (PPR) as well as the impending Default Regulations.
Arguably the biggest change to the South African financial services industry is the split of powers between the newly formed Prudential Authority and the FSCA.
The Deloitte report points out that in the United States, the Department of Labour’s fiduciary rule for investment products fell under the market conduct umbrella. While a court’s vacating of that rule has provided some breathing room for those offering annuities in the United States for retirement security, the likelihood of state attention makes stricter sales standards seem inevitable.
Just when South African insurers feel uncomfortable that they may be victimised by RDR, they need to look at what’s happening globally. The Deloitte report shows that there seems little doubt that there will be a rule governing sales of US annuity products.
However, insurers don’t yet know whether regulation will come at the federal or state level (or both), let alone how strong or limited the rule will be.
The biggest enemy is waiting
The world is increasingly moving towards being part of a shared economy. This means that the effects of a business transaction or a status update in Tokyo Japan can have an impact on Wall Street in the US.
This opens the door for cyber criminals who are becoming emboldened to carry on their business with little to no impunity on the horizon. Cybercrime, and the business interruption that is associated with it, is the biggest risk facing insurers in 2019.
The Deloitte report points out that in early 2018, a think tank estimated that cybercrime costs the global economy the equivalent of 0,8 percent of global GDP, or $600 billion annually. The financial services sector – where funds are invested – may be particularly vulnerable.
South Africa is particularly vulnerable when it comes to cybercrime. A recent report points to the fact tha