The Insurance Act, which was signed into law earlier this year, aims, among other things, to increase low-income earners’ ability to access insurance products and foster transformation in the insurance sector.
The Act, which was approved by Parliament in December last year, aims to bring smaller players into the fold under the auspices of the regulator, the new Prudential Authority, which will fall under the South African Reserve Bank.
“Not only will the new law make it easier for low-income consumers to access insurance products that cater to their needs, but it also gives small businesses the opportunity to enter the insurance industry,” says Vera Nagtegaal, the executive head of Hippo.co.za.
Nagtegaal says the Act seeks to link licensing with the sector’s overall transformation targets as set out in the financial sector code. “This will empower the [regulator] to push for development targets, financial inclusion and transformation objectives.”
The framework’s transformation component is linked to the Broad-based Black Economic Empowerment Act and the financial sector code, which have made transformation in the insurance industry a priority.
The inclusion of smaller businesses is a great way to foster innovation, Nagtegaal says. “It means insurers can think out of the box and look to accessible insurance product solutions that have worked in many African countries.”
For example, MMI and MTN have partnered to launch a micro-insurance joint venture called aYo. With aYo, people will be able to apply for and buy insurance from their mobile phones using their airtime balance.
Nagtegaal says that making insurance products accessible to a wider consumer base means that more people can protect their assets and themselves.
“Outlets such as Jet and Pep have started selling life cover products at point-of-sale. Much like the growth of mobile money wallets in South Africa, and what’s being done by aYo, we can expect easy-to-use products that are made available through cellphones.”
To ensure that consumers are protected, insurers will have to invest in consumer education, she says.
“It’s important for insurers to inform the public about changes in the financial services sector, such as the introduction of the Twin Peaks system, aimed at reinforcing consumer protection.”
“Twin Peaks”, to be introduced this year, will see financial regulation split between the Prudential Authority, responsible for the financial stability of providers, and the Financial Services Conduct Authority, responsible for market conduct.
The new law introduces a legal framework for micro-insurance, and amends and replaces certain parts of the Long Term Insurance Act and the Short Term Insurance Act. It has three broad objectives, which are to:
• Broaden consumer access to adequate insurance products;
• Strengthen the insurance frameworks to maintain financial soundness in the industry; and
• Align with international standards.