Insurers see regulations as greatest risk

 

Chuks Udo Okonta and Agency report

 Insurers across Africa see coping with regulations as their greatest risk, a survey by PwC, has revealed.

The survey stated that series of new laws distracts Chief Executive Officers (CEOs) from focusing on strategic areas of their business, adding that in South Africa some executives of key insurance companies spent about 65 per cent of their time dealing with compliance issues.

In its survey, PwC relayed 12 responses from insurance practitioners in South Africa and seven from the rest of Africa. The professional services company polled more than 600 insurance practitioners and industry observers in 54 countries.

The survey looks at what insurers see as the top risks over the next two to three years.

Victor Muguto, long-term insurance leader for PwC Africa, said the challenge was that a wave of new regulations emerged at the same time. He said companies had indicated that the regulations were costly to adhere to and also time-consuming.

Among the sophisticated regulations that insurers have to deal with are those aimed at treating customers fairly, scheduled for next year. Another is the solvency assessment and management rule requiring long-term and short-term insurers to align their capital requirements with the underlying risk so that they can pay out multiple claims from policyholders.

The solvency assessment is scheduled for 2016. There is also the National Health Insurance initiative which is being piloted, the financial sector code, which came into effect earlier in the year, and a raft of other regulations.

"It’s ironic that the industry’s greatest risks are seen to come from regulation, which is intended to reduce risk, at a time when operating and underwriting conditions are also very hard. It is no surprise that these pressures are reflected in rising concerns about the ability of management to handle them," Mr Muguto said.

Tom Winterboer, the financial services leader of PwC in Southern Africa and Africa, said in South Africa some executives of key insurance companies spent about 65 per cent of their time dealing with compliance issues.

"I think the insurance companies fully subscribe to the fact that there must be regulation," Mr Winterboer said. However, he said insurers have to align their systems with new requirements, and this usually comes at a cost.

Mark Claassen, an actuarial leader for PwC in Southern Africa, said another challenge was duplication in the regulatory environment, which consumed a lot of companies’ time.

Then there was regulatory uncertainty. Firms were investing in systems but were unable to know whether a raft of new regulations would push them to change these systems.

There are also fears that with the pace of change and volume of new rules some of the small insurers may be unable to cope with the costs.

Mr Claassen said hundreds of millions of rand were being spent by companies on aligning systems to regulations.

One of the biggest risks for the South African insurance industry was the subdued macroeconomic environment. There was also the challenge of attracting the right talent. This was cited as the third-biggest concern.

While there was solid management in South Africa, the survey said that the challenges included the shortage of expertise such as actuarial skills.