Date post: | 18-Jan-2016 |
Category: |
Documents |
Upload: | randolf-holland |
View: | 213 times |
Download: | 0 times |
1
ASSISTANCE BUSINESS IN THE RSA
PRESENTATION
to
PCOF
on
8 Augustus 2003
by
A Swanepoel
2
ASSISTANCE BUSINESS IN THE RSA
Background
Who are the stakeholders?
Characteristics of the market
Problem areas and risks
The way forward?
Questions
3
ASSISTANCE BUSINESS IN THE RSA
Background
Cultural issue of importance
Provide for funeral plus ancillary services
Honesty, trust, caring and social responsibility important in burial societies
Very often the first step into financial services
Contributors are mostly from non-white sector
4
ASSISTANCE BUSINESS IN THE RSA
Principles to take into consideration
Is this a market that needs more than the normal protection?
Market conduct rules and supervision the main issue
There are prudential issues with small insurers
Cost-benefit of supervision?
Non-systemic
5
ASSISTANCE BUSINESS IN THE RSA
Who are the stakeholders?
Group administrators
STAKEHOLDERS
InsurerFuneral parlours
Brokers
Friendly societies
Burial societies
Individual policyholders
Illegal operators
Acts of Parliament
6
ASSISTANCE BUSINESS IN THE RSA
Structure of market
FormalUnionsRetail clientsEmployer basedFriendly societiesCompulsory and insured
Semi-formalLarge burial societiesChurch groupsFuneral parloursVoluntary and often insured
InformalBurial societiesOccasionally insured
Illegal operators
ASSISTANCE BUSINESS MARKET
7
ASSISTANCE BUSINESS IN THE RSA
Distribution channels
INSURER
5 6 8 7/4 3 1 2
Broker Broker Adm Adm
BrokerP/holder P/holder
FunctionsAdministrationSalesPremium collectionData capturingClaims
Differently catered for in different models.
V/group V/group V/group C/group V/group
8
ASSISTANCE BUSINESS IN THE RSA
Long-term insurers
37 insurers registered for assistance business
32 limited to R10 000
5 limited to 5000/3000/2000/1000(2)
Total premiums R690 million (plus extra?)
That is 0,5% of total premium income of life insurers
9
ASSISTANCE BUSINESS IN THE RSA
Total contributions R??? (my estimate R2,5 billion based on 55/15 relationship) plus the “extra” volume
Friendly societies
Total contributions R32 mil (for all types of benefits)
Total benefits: funeral R14m, death R4m
10
ASSISTANCE BUSINESS IN THE RSA
Burial societies
Approx. 100 000 primary burial societies
Covering 3 million members
Between 10 to 200 members per society, mostly women
Contributions estimated at R2 billion
11
ASSISTANCE BUSINESS IN THE RSA
Characteristics of the marketBuyers are unsophisticated in generalMarket is in the hands of the administrators and the intermediariesVery often a “long food chain” /fat in distribution channelNo commission limitations on (assistance) insurance policies
12
ASSISTANCE BUSINESS IN THE RSA
Mostly done via group schemes/typical no underwriting/only risk, no savings elementOnly two types of institutions who can legitimately underwrite namely insurers and friendly societies (burial societies)Demarcation between burial societies and friendly societies greyDeath benefits normally paid within 48 hoursBenefits often paid in kind but option to receive cash remains (sec 53)Not all cover sold under the banner of assistance business
13
ASSISTANCE BUSINESS IN THE RSA
Problem areas and risks Lack of knowledge of products and financial disciplinesExcessive commission paidOften no security that benefits will be paidPolicies cancelled after long periods of contributions
14
ASSISTANCE BUSINESS IN THE RSA
Policyholders not in contact with underwriter/long “food chain”On-off underwriting/difficult to trace schemes on cancellationIllegal operators
(Fraud/disappear/no contractual rights/weak enforcementPolicyholder misled regarding status of operatorCash flow underwriting until problems ariseOnly portion of premiums paid to underwriterVAT and other tax evasionsDouble underwriting
15
ASSISTANCE BUSINESS IN THE RSA
Integrity of many intermediaries problematicDo not pay premiums to next level or administrator/underwriterDo not pay claims to beneficiaries or withhold portionLittle knowledge of legalities involved
Overselling, too may policies taken outUndertakers enforce contractual agreement that they only may conduct funeralExploitation regarding costs of coffins and services
16
ASSISTANCE BUSINESS IN THE RSA
Fraudulent and excessive claims
Organisational, record keeping and accounting problems
Difficult for small insurers to comply with Act
Weak enforcement system in Courts/3xfines of R600
Lack of compliance with PPR and other sections of the Insurance Act
17
ASSISTANCE BUSINESS IN THE RSA
Developments thus far
LOA’s Assistance Business Standing Committee
FSB’s Working Group on assistance business
Study on Burial Societies (Thomson and Posel)
National Cooperative Association of South Africa and the National Committee on Burial Societies
FSB’s consumer education campaign (still much to do)
FAIS Act
There is a general agreement and a will to do something now
18
ASSISTANCE BUSINESS IN THE RSA
The way forward
AREA POSSIBLE ACTIONSA.Formal market: insurers
1.FAIS Act will bring conduct of Administrators in line
2.Intermediaries/funeral parlours will be brought into the FAIS net
3.More controlled movement of schemes
4.Disciplinary actions/removal from industry
5.Better disclosure now obligatory
6.Stricter enforcement of Ins. Act
19
ASSISTANCE BUSINESS IN THE RSA
The way forward
AREA POSSIBLE ACTIONSB.Semi-formal market : friendly and burial societies
1.Self-regulation (stokvel approach)for small mutuals
2.Revise FS Act and enforcement
3.Education on rights and responsibilities
20
ASSISTANCE BUSINESS IN THE RSA
The way forward
AREA POSSIBLE ACTIONSC. Illegal operators 1.Education, education,
education
2.Name and shame
3.Quick and cost-effective enforcement with penalties
4.Rather bring them into the net than penalise them
21
ASSISTANCE BUSINESS IN THE RSA
Further work
More research necessary
Making group schemes more permanent (cost vs security)
Beef up enforcement and penalties
FIC Amendment Bill/Enforcement Committee
Consumer education
Central funeral fund(s), underwritten by insurers, cut out high cost of distribution?
Credit Life much the same problems
Enhance effectiveness of dispute resolution mechanisms