Rule changes and digitalisation will reshape the way insurance products are distributed.

Recent and upcoming changes in the insurance regulatory landscape will shake up traditional distribution channels in South Africa, leading to a decline in the number of traditional insurance intermediaries.

The main drivers behind this predicted trend are:

  • The introduction of a maximum amount of fees payable to binder holders (cover holders), which will reduce the consideration which they can charge for such services;
  • Increased compliance costs for such intermediaries due to:
    • the introduction of minimum governance, risk management and internal control frameworks which must be established and maintained by the intermediary; and
    • forthcoming requirements imposed on binder holders when rendering services to ensure integration between the information technology system of the intermediary with that of the insurer to enable access to up-to-date and complete client data as and when requested by the insurer; and
  • A reduction in the amount of monies which can be earned by premium collecting intermediaries due to:
    • a change from the traditional premium collection model through the introduction of direct premium collection by insurers; and
    • new legislation will also preclude intermediaries from holding premiums for a period longer than 45 days, and from keeping any interest earned on premiums.

These changes come at a time in South Africa when the introduction of digital distribution models is growing and becoming a main method of insurance sales by many insurers. Digital platforms are gaining increasing recognition, including being recognised by the regulators who now specifically regulate the provision of automated advice. As a result, traditional intermediaries are increasingly being bypassed and their numbers will fall in the coming year and beyond.

Read the rest of our insurance predictions here.

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