Big changes are coming to the way premiums are collected – and they could have devastating effect on intermediaries, according to an article in the November 2018 edition of FAnews.
The article, titled A stroke of genius or shooting a hole in a dam wall?, examines the impact that the Financial Sector Conduct Authority’s (FSCA) Regulatory Reform Programme will have on premium collections.
The FSCA’s regulatory framework senior specialist, Eugene du Toit, argues that the primary intention with any regulatory change is to ensure improvements to the industry by promoting sustainability and stability in the interests of policyholders – but Fulcrum’s managing director for Collections, Barry Scott, paints a bleak picture for premium collecting intermediaries.
The new requirements will include a specification around the purposes for which an insurer’s premiums may or may not be used by the collecting intermediary, Scott says. While this guards against the abuse of premiums by intermediaries, it also impacts brokers’ income because they would lose their ability to invest the premium for up to 45 days – and thus also the interest-sharing advantage of being a collecting intermediary.
Another major possible change is that insurers would be allowed to monitor the collecting intermediary’s performance in terms of the authorisations they have given.
“It implies a certain logistical challenge in meeting multiple different insurers’ requirements. All of this could imply an increase in costs for the collecting intermediary, as well as operational bottlenecks to accommodate multiple insurers’ requests, requirements and reporting,” says Scott.
And then there are more, just as tough, potential changes …
For starters, says Scott, there’s the possibility that brokers may not be allowed to collect premiums in future: “A future potential change could see the adoption of Proposal F of the original [Retail Distribution Review] document. If adopted, it would see premium collection becoming an outsource function and no longer an intermediary service.”
Also, the end of the Intermediaries Guarantee Facility (IGF) at the end of March 2019 could result in brokers struggling to obtain replacement guarantees and, “if this is the case, insurers may not allow brokers without guarantees to collect premiums”.
Click on the link below to download and read the full FAnews article.