Back on track
Various regulatory changes were finalised to give insurers greater certainty
IT HASN’T BEEN an easy ride of late for South Africa’s life insurance industry. An increasingly tough regulatory regime, combined with a spate of rulings against life companies by the Pension Funds Adjudicator concerning early termination values applied to retirement annuity (RA) fund members, has dented consumer confidence in the industry.
In an attempt to improve its image with the investing public and ensure its continued sustainability, the industry – through the representative Life Offices’ Association (LOA) – and Finance Minister Trevor Manuel signed a landmark Statement of Intent agreement in December 2005, a R3bn enhancement in policy values for current and former policyholders who had their fund values reduced for early terminations or contractual “adjustments” after 1 January 2001.
In its collective Statement of Intent (SOI), the industry committed to assisting policyholders by guaranteeing qualifying members of RA funds and endowment policyholders whose policies are still on the books of insurers a minimum value (See listed criteria on page 98).
While those investment vehicles have historically been one of the most important savings mechanisms for South Africans saving for retirement, their shortcoming has been in the poor value they often provided to those members who weren’t able to maintain their premium payments throughout the term of the investment.
Gerhard Joubert, CEO of the LOA, says that in addition to commitments by insurers themselves on the reduction of their own charges (as reflected in the new minimum values) the minimum value enhancements were also underpinned by a commitment by Government to introduce a new commission regime, which is likely to entail a balance between upfront and as-and-when commission.
Says Joubert: “Since the signing of the SOI we’ve been interacting closely with the various intermediary bodies, as well as National Treasury and the Financial Services Board, to ensure that the new commission structures aren’t only affordable to our policyholders but also ensure that our intermediaries have a viable income. In addition, various other regulatory changes were finalised to provide insurers with greater regulatory certainty.”
Joubert says the aim now is to start educating consumers and policyholders regarding the effect of the new protective measures, which aren’t only retrospective but also have the effect of limiting the reduction in values for RA fund members and endowment policyholders who aren’t in a position to maintain premiums in future.
“As an industry we’ve recognised that changes in the economic and social environment in SA mean that people tend to change jobs more frequently and get themselves into short-term cash flow problems, where they simply can’t afford the payments. So consumers need greater flexibility from retirement products than in the past.”
The aim now is to start
educating consumers and policyholders. Gerhard Joubert