The Fulcrum Group has launched a new product called CollectDirect™, which deposits premium collections directly into the respective insurer’s bank account.
The system reduces risk for insurers and is fully compliant with the proposed amendments to regulations pertaining to the Short-Term Insurance Act that will put a stop to Sections 45 (IGF) guarantees from a future date to be decided.
“Section 45 of the Act enables premium collection to take place through an authorised financial services provider such as Fulcrum Collections,” says Barry Scott, Executive Head of Fulcrum Delta. “The way that it works currently is that we receive debit order instructions from each of our brokers and collect the premium into a Fulcrum bank account. Our IGF guarantee covers the funds sitting in that bank account. We can hold the premium until the 15th of the following month, before paying it over to the insurer and paying the brokers their commission."
An issue with this method of premium collection is the perceived risk insurers have when the IGF guarantee is insufficient to cover the outstanding premiums. This risk will be exacerbated when the IGF guarantees are no longer available.
“Under the Solvency Assessment and Management (SAM) environment, this risk has to be taken into account on insurer balance sheets. So, if the IGF guarantee isn't big enough to cover the outstanding premium, insurers have to account for that risk. Fulcrum recognised the need to find an innovative solution to mitigate this perceived risk, especially given that the IGF guarantees will eventually disappear.”
Fulcrum has been working on CollectDirect™ since 2015, when the company was approached by one of the large insurers to come up with a way to help them manage this risk better.
“For the time that we were holding their premium, the insurer had a hole in their business not covered by a guarantee,” says Scott. “So they asked us to come up with a solution – either put guarantees in place for the full collections amount or come up with some other mitigation plan.”
The Fulcrum team put their heads together and came up with the CollectDirect™ solution, which was piloted very successfully last year with a small group of brokers.
“We started collecting directly into the insurer's account, and everything went really smoothly,” says Scott. “Fulcrum still manages the whole process; we do the reconciliations, the unpaid reconciliations, deal with all the queries, etc. It's just a simple switch in our process that channels the premium directly into the insurer's bank account.
“We load transactions and broker commission payways. We still deal with unpaids and other management issues. The only difference in process is that the insurer has to authorise the transactions before they are released.”
For the insurer, Fulcrum CollectDirect™ has completely de-risked the process. Whereas previously the insurer would have premium sitting with Fulcrum for up to 45 days, now it sits in their bank account from day one. The insurer pays Fulcrum a fee to manage this process.
“Since the announcement of the amendments to the Act, we have already signed four more major insurers onto CollectDirect™,” says Scott. “We anticipate that all collections in the insurance environment will be done in this way before the end of 2018. Insurance system providers are busy getting their houses in order in anticipation of the new methodology. They are updating their platforms to be CollectDirect™-compliant. In fact, Fulcrum’s own system – Fulcrum Flexi – has already been compliant since early 2017."
Scott says that by June, most major policy management systems will have been modified to run CollectDirect™.
“CollectDirect™ has been designed to be flexible so that we are able to accommodate the different systems and types of relationships that insurers have with brokers,” says Scott. “Whater insurer model you have with your brokers, we can accommodate it.”
Brokers can expect a communication from Fulcrum and insurers in this regard in the very near future.
“We see CollectDirect™ as a partnership between Fulcrum, insurers and brokers,” says Scott. “It is imperative that the outsourced collections model changes, and CollectDirect™ provides the perfect solution.”