New Rules to Govern South Africa's Insurance Industry

April 22 - New rules governing South Africa's insurance industry have been announced this week by the country's central bank.

The Solvency Assessment and Management rules, or SAM, will require that South African insurers match their capital with the underlying risks carried.

This is to ensure that policyholders are well paid out on claims if they suffer any losses.

According to the latest Financial Stability Review issued by the South African Reserve Bank, SAM will be implemented by 2014.

"It is expected that SAM will result in a stronger industry in the longer term," noted the bank.

The aim of SAM is to ensure that the public is protected to the highest degree. It is modeled on the European Solvency II framework and requires that South African insurance companies carry out internal audits and adopt risk management strategies.

The MD of Mutual and Federal, Peter Todd, believes that these latest legislative changes, which also include the Consumer Protection Act and the Insurance Laws Amendment Act will see a shift in the relationship between companies, customers and brokers.

These sentiments were echoed by Herman Schoeman of Guardrisk, who said that "the costs of compliance, as well as the new capitalisation requirements will impact on both the industry's structure and the operational architecture of insurance companies."

However, Nic Kohler of Etana said that, despite these hurdles, "the new legislation was nonetheless laudable in the light of the low levels of financial literacy among South African consumers, allied with a necessary reliance on self-driven retirement and risk planning."