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Life Industry
Friday, February 1, 2002
Turning clients away

If the South African authorities do not take cognisance of the fact that British over-regulation has discouraged savings in the UK, then the same fate will befall this country, says Brian Benfield, Professor of Insurance and Risk Management at Wits University, Johannesburg. And he refers to a recent overseas newspaper report.

The London Financial Times reported on Monday, August 27th 2001 that the ever-dwindling number of life assurers surviving in the United Kingdom are preparing to tell a government-sponsored enquiry into the dramatic long term fall in UK savings and life assurance purchases, and that unclear and over-lapping over-regulation is one of the main reasons that has turned potential savers away.
Executives consulted by the Association of British Insurers (ABI) have made it clear that Ron Sandler’s investigation should be told that the Industry is under siege as never before, the paper reports. Notwithstanding nearly two decades of the most stringent financial services regulation, and much to the embarrassment of the British Financial Services Authority, the image of the life industry in the UK has suffered in recent years due to a string of scandals, mis-selling and mismanagement. The Sandler Enquiry is seen as the best chance for convincing government that present over-regulation needs to be changed.
Francis McGee, Head of Life Assurance at the ABI said, “In a market that is as heavily regulated as this one, there comes a point where the over-lapping and weight of all the regulation ends up severely reducing efficiency.”
Talks between industry figures in London and the ABI highlighted three other key points that will form the outline of the Industry’s submissions to the Enquiry:
• Future regulatory changes must serve to increase the overall level of savings in the country;
• Regulations must preserve a dynamic market that delivers a choice of products to consumers; and,
• Regulators must avoid trying to regulate for a perfect market in order to avoid the many unintended consequences of current regulation.

“Every time regulators do something in the name of making things better, there are all kinds of negative unintended consequences,” Mr. McGee said.
Comments Professor Benfield, “These are important lessons which South Africa seems destined to have to learn all over again the hard way through harsh direct experience.
“Unless a proper and thorough study of UK and Australian experience is made prior to the introduction of the proposed Financial Advisory and Intermediary Services Legislation, the South African insurance industry can expect to face similar consequences: the decimation of a once vibrant capital and employment generating industry.”

Copyright © Insurance Times and Investments® Vol:15.1 1st February, 2002
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