In the “good” old days, just about anyone with a little knowledge could become an intermediary. Of course, intermediaries now have to be registered with the Financial Services Board (FSB) in terms of the Financial Advisory and Intermediary Services (FAIS) Act, and they are obliged to comply with a slew of regulations that protect you, the consumer.
To further assist the consumer, regulatory authorities are now forcing insurance companies to take full responsibility for how the intermediaries conduct business on their behalf. This means that insurers will now reconsider how to do business with their intermediaries.
“As long as consumers are continuing to suffer the effects of a tough economic climate, they may consider cutting back on premiums. This means that insurance companies will have to find ways to hold down costs,” says Barry Taylor, chairperson of the Short-Term Exco and Director at the Financial Intermediaries Association of Southern Africa (FIA), which represents more than 15 000 licensed financial services advisers throughout Southern Africa.
To cut costs, companies will doubtless tighten up on claims settlements. This doesn’t mean valid claims will be rejected, but claims staff will be even more vigilant when it comes to assessing the quantum of each claim and deciding whether a claim is valid or not.
And this means that the broker will have to be more vigilant in ensuring that the claims settlement is fair and not prejudiced by the insurer’s drive to cut costs.
“Intermediaries can assist in the claims process by making sure that claims are supported by all the relevant documentation. They are, however, in the frontline of the fight for their client’s contractual rights and it is their primary duty to point out and motivate against frivolous and opportunistic interpretation by underwriters to the detriment of their clients,” says Taylor.
Interesting times lie ahead
Taylor takes pains to point out that because the industry is a highly competitive one, there will always be good deals out there for the consumer. “However, in cases where claim ratios are excessive, the cost will be passed on to the consumer,” he cautions.
Make sure your needs are met
Insurers will also be introducing new minimum targets that intermediaries will have to meet in order to have a service contract with the insurer. Although intermediaries have questioned whether setting increased minimum targets for them contravenes FAIS legislation or not, it would appear there is no breach of legislation.
According to Taylor, the essence of the minimum target is based on numbers of policy units and in some cases also measured against annual premium income.
Intermediaries fear that they are being forced to place business with an insurer based on factors not solely related to the needs of the client and the product fit, but companies claim that these targets will justify servicing costs. This is not, however, a barrier to access to the market for the intermediary as they do have freedom of access to all insurance carriers.
“In some cases, insurers are happy to negotiate their contract terms, even looking to settle on a form of reduced service level, but we are also seeing a move by some insurers to stick to strict criteria. This is justifiable to a certain extent because even if there is not a high level of service being offered to intermediaries, there are usually various overhead costs associated with maintaining a contract, such as producing monthly commission statements and compliance checks,” says Taylor.
To manage the risk of the minimum targets set, an intermediary will want to restrict the use of the number of insurers they deal with and therefore choose one or two insurers who will offer them a good product range and proper service levels.
Taylor says intermediaries must exercise skill when negotiating their insurer contracts, allowing them to fulfil their obligations to their clients.
“When the risk service providers terminate agreements with perceived unproductive brokers, it is likely that opportunities will arise for successful mergers or joint ventures with a combined offering that may well be attractive to emerging smaller underwriting facilitators seeking additional market share,” says Taylor.
Another risk that intermediaries need to be aware of is that of insurers cancelling policies if loss ratios become unacceptably high. While suitable notice should be given to allow the risk to be substituted, intermediaries need to accept some responsibility for maintaining the balance between premiums and claims and to act in the best interests of their clients in arranging suitable cover, combined with suitable and appropriate risk management advice.
There are multiple risks for intermediaries operating in a tough economic environment but now more than ever there is a need for intermediaries to fulfil their role in the market by continuously seeking the best solution for each client. And they also need to choose the best business partner to carry the risk.
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