Wilt­ing un­der the weight of mas­sive leg­is­la­tion

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Pa­trick Bracher

ISPENT the past few week­ends plough­ing through the new In­sur­ance Bill which has to be read to­gether with the Fi­nan­cial Sec­tor Regulation Bill, a mon­u­men­tal work of 295 sec­tions and, with its sched­ules, 200 pages.

This pro­posed leg­is­la­tion has to be read with the on­go­ing Retail Dis­tri­bu­tion Re­view which will add regulation upon regulation to the man­ner in which fi­nan­cial prod­ucts are dis­trib­uted.

Un­til 1998 we had one in­sur­ance act for gen­er­a­tions. Then we had two, one for life and one for non­life busi­ness. When the In­sur­ance Bill is passed we will have three, the two ex­ist­ing acts and the new act. Even­tu­ally they will all be con­sol­i­dated and we will go back to one act.

The In­sur­ance Bill gives life to the Twin Peaks model for the in­sur­ance in­dus­try. There will the­o­ret­i­cally be a pru­den­tial reg­u­la­tor to keep in­sur­ers sol­vent and a mar­ket-con­duct reg­u­la­tor to see that pol­i­cy­hold­ers are fairly treated, both good aims. Each of them or both of them will pro­duce “stan­dards” as to how in­sur­ers are to be be­have. The stan­dards de­ter­min­ing how busi­ness will be con­ducted will roll down from the top of the twin peaks in an avalanche of new regulation.

It is not clear who will be look­ing af­ter what. The pru­den­tial au­thor­ity pro­motes the sound­ness of fi­nan­cial in­sti­tu­tions and mar­ket in­fra­struc­tures and pro­tects fi­nan­cial cus­tomers against risks of non­per­for­mance by fi­nan­cial in­sti­tu­tions. As ap­pears from the In­sur­ance Bill, some of this has to do with how cus­tomers are treated. Whether you get or keep your in­sur­ance li­cence is de­pen­dent on the pru­den­tial au­thor­ity’s views on your con­duct.

The mar­ket con­duct au­thor­ity en­hances ef­fi­ciency and in­tegrity in the fi­nan­cial sys­tem, pro­motes the fair treat­ment of cus­tomers and as­sists in main­tain­ing fi­nan­cial sta­bil­ity. If you are con­fused about who does what, so is the leg­is­la­ture. That is why pro­vi­sion has to be made for the two au­thor­i­ties to is­sue joint stan­dards. But what is the prob­lem? At about the same time the In­sur­ance Bill came out, the 2015 Fin­Scope Sur­vey was pub­lished. Of the 18.5-mil­lion peo­ple who are in­sured, nearly 12-mil­lion only have fu­neral in­sur­ance.

Fu­neral in­sur­ance is sold on a low ad­vice ba­sis through many peo­ple in­clud­ing fu­neral par­lours, trade unions and foot­ball clubs. Com­mis­sion is un­reg­u­lated and the ap­peal of one prod­uct over an­other is gen­er­ally price-re­lated so that the free mar­ket op­er­ates. Pen­e­tra­tion by the rest of the in­sur­ance mar­ket is low and de­clin­ing.

Any­one in the in­sur­ance mar­ket read­ing the In­sur­ance Bill or the Retail Dis­tri­bu­tion Re­view will have no idea how to plan their fu­ture. The in­sur­ance laws awaits a ream of stan­dards and the Retail Dis­tri­bu­tion Re­view has a ra­tio of unan­swered to an­swered ques­tions that is prob­a­bly about 10 to one.

No-one sug­gests an un­reg­u­lated mar­ket but the enor­mous bur­den of mas­sive leg­is­la­tion on the reg­u­la­tors and the reg­u­lated is clearly not the so­lu­tion. There is no rea­son to think that there would be a worse out­come if the ad­e­quate ex­ist­ing laws were ra­tio­nally en­forced.

You may re­mem­ber the hi­lar­i­ous sketch from Monty Python about the Min­istry of Silly Walks. Per­haps it is time we es­tab­lished a Min­istry of Silly Words.

Pro­posed new laws will add regulation upon regulation on fi­nan­cial prod­ucts

Pa­trick Bracher (@PBracher1) is a di­rec­tor at Nor­ton Rose Ful­bright.

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