Gareth Stokes | March 10, 2025
Policy subjectivity remains a major bug for South African short-term insurance brokers. The term refers to a discrepancy in the overall conditions set or requirements that an insurer must meet to apply, and there are various interpretations that contribute to the uncertainty of the broker and its clients.
Conditions and freedom of exclusion
The inconsistent policy language, various exclusions, and underwriting discretion make it difficult for intermediaries to provide clear and reliable guidance to insured persons, not to mention comparing estimates from major insurers. And the problem doesn't end there. In the past, multi-grade arrangements typical of large commercial projects have been more predictable as they generally followed the conditions of major underwriters. Today, each insurance company can choose to apply its own exclusions and terms.
Sam Williams, head of law and regulatory authorities for the South African Financial Brokerage Association (FIA), highlighted policy subjects as the main challenge for the association's non-life insurance broker members. “We have been working with the Financial Sector Action Agency (FSCA) for over two years to find a solution to this problem. In a regulatory update at the Natsure Annual Partner Conference held recently in Pretoria, she can include an increasing list of cyber, climate and policy exclusions beyond Grid Expalusions.”
Some commentators felt that the South African Insurance Association (SAIA) was the perfect place to address the issue of policy subjectivity. However, the association refuses to be involved, and “relying on such arguments would violate the national competition laws,” which are often used. The FIA has decided to take a slightly different approach to South Africa's potential to develop a standard policy expression framework similar to that used by British insurers (UK). The FSCA met with the Competition Committee to test the water in the FIA proposal.
Intermediaries leading the debate?
“In order for our members to give the best possible advice to our clients, it is utmost important to address the lack of clarity that arises from recent changes in policy language,” Williams said. Apart from policy subjectivity, the non-life insurance sector is also struggling with the protection gap created by the withdrawal of insurance cover blankets due to the pandemic and other uninsured risks. After discussing the issue with the government and SAIA, the FIA feels that intermediaries should take the lead by documenting their approaches and seeking industry comment.
The complex environment mentioned in the previous paragraph explains the recent evolution of risk advice. Brokers had to graduate from advice on insurance solutions to advice on risk attitudes. “We can't advise the giver anymore. We need to really focus on the risk management factors,” Williams said. The association is a major initiative in this area, with plans to introduce four CPD accreditation risk management training modules to its members. These modules cover risk management from both the brokerage and client side, giving brokers the advantage of risk identification, analysis and mitigation.
Regulatory updates are reflected in many general legislative changes that apply to the areas of advice that FIA members engage in. First and foremost, the FIA is lobbying the Ministry of Employment and Labor (DEL) on the Financial Sector Employment Stock Targets announced by DEL on February 11, 2025. Companies have five years of compliance.
Impossible 5th year goal
The FIA is concerned that intermediaries are subject to the same targets as banks and insurance companies. Since then, we have completed a benchmark exercise comparing some of its large members with an economically active population and submitted this study to DEL. “Conversion is a fundamental obligation for the FIA and South Africa as a whole. But we can't expect Del to reach the targets he is proposing from where he is today,” Williams said. Dell agreed to bilateral involvement with the FIA on the issue.
The implementation of the Financial Intermediaries (COFI) bill cannot be discussed without receiving airtimes and regulations in the financial sector. According to Williams, the National Treasury is distracted by other priorities, particularly working on a fixed point on the Financial Action Task Force (FATF) grey list. “COFI will be a stronger change for the industry. We're going to move us to a more outcome-based approach to the law and a focus on non-normative regulations,” she said.
The delay in tableing Cofi in Congress is a set-up. However, the FSCA has broad authority under the Financial Sector Regulation (FSR) Act and promotes standards of conduct. Regulators have established COFI transition work through dedicated subcommittees, moving forward with a variety of issues, including conformance and appropriate requirements. These committees are considering the next steps in progress from the current Financial Recommendations and Mediation Services (FAIS) Act to new COFI distributions.
Welcome from OmniCBR
It appears that regulators need to clarify COFI compliance and appropriate requirements before completing the COFI licensing framework. The FIA believes that 80% of the issues will be addressed before everything returns to the middle industry for comments.
Another pending regulatory intervention is the so-called OMNI acts in the Business Report (OMNI CBR). The FSCA then distances it from its quarterly reporting requirements and revisits the scope of its overall return. The fact that regulators are considering a more risk-based approach does not significantly reduce the ultimate compliance workload that needs to be shared across businesses.
Williams encouraged intermediaries to pay close attention to guidance memos about direct marketing recently published by information regulators. This memo provides guidance to the person responsible for how personal information is processed in accordance with many terms and conditions for legitimate processing, and the overall interpretation of the Privacy Act (POPIA) in relation to direct marketing.
“As a broker, I don't want regulators to want a quick victory (in the environment), so I need to get used to the content of this notification,” she concluded. For those overly responsible or overwhelmed, the final advice: “In fact, they are aware of new regulations and are used to them. The cost of failing to comply is much greater than the cost of compliance.”
The growing list of policy subjectivity and cover exclusions makes it nearly impossible for short-term South African brokers to operate effectively. Should intermediaries take the initiative by requesting standardized policy language?
“Disclaimer – the views and opinions expressed in this article are the views of the author and are not necessarily those of the Bee Room.”
