Black Insurance Advisers Council‘Service To Our Members’

137-392 NPO

COMMENT ON FINANCIAL SECTOR TRANSFORMATION

No. 15 Joubert Street Suite, 15 Muydene Building, VEREENIGING, South Africa, 1930

P.O. Box 2564, VEREENIGING, South Africa, 1930

0164211300, FAX 0164211300Mpuru@telkomsa.net

EXECUTIVE: MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA

Page 1

1. INTRODUCTION

BLACK INSURANCE ADVISERS COUNCIL (BIAC) is a formation by the PDI financial advisers who have been in the insurance industry for a minimum period of 10years ,with the executive committee sharing a combined service of over 150years.

The organisation is still in its formative stages but already has its presence in all the provinces in the country ,despite the usual lack of financial support from the insurance companies.

BIAC ‘s formation was influenced by the following factors:

Inability to cope with an influx of regulations

Failure by the FSB to profile the independent financial advisers before any changes to their job could be introduced

Missing support from INSETA or their selective support

Changing of independent financial advisors contract without consultation e.g. forcing the financial advisor to work for a franchise

Proposed changes to our commission structure without looking at our clientele e.g RDR

Exodus of experienced independent financial advisers out of the industry

The loss of income to the financial adviser whose clients would be used to increase the income of the insurance companies’ preferred financial advisors book

Exodus of young financial advisors out of the industry due to high demand for production

The industry players’ average age of 57years

High cost of operation for independent financial advisors and encouragement by insurance companies for them to come back as reps

The ease of losing business to other big brokerages eg. Pension fund and Medical Aid business

Pressure on Broker Consultant to extract business from the independent financial advisor because their income is dependent upon our performance

No representation at ASISA, SAIA, INSETA , FSB

These are some of the issues which have contributed towards the formation of BLACK INSURANCE ADVISERS COUNCIL (BIAC)

2. THE CURRENT PRACTICE

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 2

BLACK INSURANCE ADVISERS COUNCIL (BIAC) has come to the following realisation, when its executive sought to engage with insurance companies:

Conflict of Interest: The FSB has introduced the conflict of interest rule which was applied incorrectly by the insurance companies. Independent financial advisors were being told that FSB was only allowing them to spend R1000 on the financial advisor for development per annum.BIAC members went to FSB to seek clarity on this R1000 issue because we knew that the bulk of the business to the insurance was being generated by the independent financial advisors. The FSB gave us a different interpretation

Binder Agreement : This is another method used by the insurance companies to assist the advantaged financial advisors to get something like a retainer fee. And be able to boost their cash flow. Very few PDI financial advisers if there any are benefiting from this initiative.

Premium Collection: There are advantaged financial advisors who are receiving a monthly fee for collecting premiums on behalf of the insurance companies. It is not happening to the PDI financial advisors

Support for BIAC: The leadership of the organisation has found it very difficult to get financial support from the insurance companies despite the fact that it is the only NPO that is registered with Dept of Social Development, in the industry.

BIAC leadership realised that big insurance companies like Sanlam, Liberty, Hollard to

name a few, display Financial Intermediary Association (FIA) in their offices and letter

heads as members of this organisation. BIAC is operating on the same level or rather as

a competitor to FIA and or MASTHEAD which is OLD MUTUAL formed association.

BIAC members as well as FIA and MASTHEAD members write business for all insurance companies, but companies are reluctant to support our association.

Why are insurance companies not willing to support BIAC initiative?

Is it because it’s a PDI thing?

Franchising: The franchise system has been introduced by the insurance for, basically, the independent financial advisors who were more associated with one company products, and also that the franchisees were made to believe that it is a way of saving on FSB costs of compliance.

To the surprise of BIAC, the independent financial advisors were being moved into the franchise operation without their consent. They usually receive letters from white lady

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 3

broker consultant who tell them that they were now falling under a franchise and that she was going to service them.

What the change means is that, the poor financial advisor will be reporting to someone who is 50km away, and have own tight budget over stretched. And also that, the financial advisor’s business would be used to boost this individuals practice without consent.

Empowerment: BIAC does not notice any room for empowerment in the insurance industry. Even the black people who appear to be in senior positions act as if they have been trained or warned not to associate with their own black people. They are always surrounded by white people at the seminars, road shows and so on.

They do not even know where our offices are located, what are our challenges. Some of them will only come to us when all the white people had left the meeting rooms.

Another Challenge: The insurance business is also on the decline because it is being led by the people who have never been exposed to the actual job of selling insurance. Who do not understand the challenges that are faced by the men and women who are always on the street pushing the companies’ brands .

The industry needs to be led by the real insurance industry players with the experience of completing the application form for a policy or at least have these people in their higher decision making bodies.

The results of the lack of insight is the closing, opening, running to the malls with the hope that the clients will walk in, with their heavy groceries, and buy insurance policies.

Some insurance companies have left their buildings in the townships and moved the reps all over the country, leaving their clients behind. Why? Teams win because their coach is a former player.

The insurance companies cannot change, not even transform by having a solitary black face as a CEO, that can be moved from one insurance company to another without any restraint of trade agreement because they know that the person is not a threat to their business strategy.

3. NEED FOR INTERVENTION: INSURANCE BODIES

3.1 ASISAASISA is a representative body of some insurance companies. The association is very much involved in sharing industry information and also making recommendations to the FSB and the government. They are also involved with the consumer education programs to mention but a few.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 4

BIAC approached ASISA with the aim of bringing the PDI financial advisor’s voice into their space. BIAC was unfortunately relegated only to the market conduct committee with the warning that ASISA will not pay anything for our participation, and also that ASISA is not a lobby group but their lobbying when they engage with FSB and government.

ASISA is the body that can ask the hard questions to the insurance industry with regards to transformation, as their association. Have they asked the questions?

Why is BIAC allowed to serve on their smallest committee, when they have more than ten committees?

3.2 SAIA

SAIA is an association of short term insurance companies. Their annual report shows that only 35% of the cars on the South African roads are insured. But every car that is financed by the bank cannot leave the dealer’s premises without having an insurance cover. What could have happened?

This is the sign of the gap in the consumer’s knowledge.

What came out of BIAC’s engagement with SAIA CEO, is the acceptance of failure to create a space for the PDI.

Transformation is still something that will never happen

3.3 INSETA

INSETA is receiving 1% of the payrolls of all insurance companies, with the payrolls in excess of R500000. This money is supposed to help grow the insurance sector PDI practitioners. But it has been found to be involved in the funding of speech competitions, ABET, Burial societies and less on the financial advisors.

BIAC has tried to bring to INSETA management attention, the fact that they were in the right position to reduce the 3,000,000 unemployed youths, by focussing on the support for the independent financial advisors. Independent financial advisors can grow their practices if INSETA can focus on assisting them with learnership.

INSETA is supposed to allocate learnerships and internships to the financial advisors. These advisors will train them on the job without having to worry about their salaries, and grow them towards becoming financial advisors. The training will guarantee them automatic employment as reps with the independent financial advisor or the insurance companies because they are forever looking for reps.

INSETA is doing it selectively and not for every practice that qualifies. INSETA as a skill development player, needs to authenticate their council members by verifying their qualifications.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 5

Associations must be allowed to have representation in their council. No association can serve the interest of the others. BIAC has been knocking at INSETA’s door since 2010 with no response. Some board members have resigned but INSETA is not willing to allow BIAC full engagement.

BIAC delegation would not have failed to attend the first presentation, had INSETA allowed for its representation. The benefits of having representation at INSETA COUNCIL are:

Our members interests will be represented Members will be informed about INSETA programs BIAC will receive a monthly stipend of plus R16000 BIAC members will be reimbursed for travelling expenses The member will ensure that information is distributed fairly amongst all financial

advisors

3.4 FSB

BIAC has held meetings with FSB as the regulator. BIAC’s focus has been to find ways of keeping the experienced players in the industry, protected against insurance companies and the regulator,that is FSB.

BIAC has on many occasions during the meetings made FSB aware of the fact that the old men and women they found in the insurance industry, were appointed many years ago, when the entry levels were standard 6 or PTC( Primary Teachers Certificate).

They have been subjected to examinations which some of them have written at a cost of R900 per sitting without succeeding. We have FSP’s , both black and white who attempted the examination more than 6 times with no success.

The pass mark is 65%

The examination is in the hands of two companies, that is Moonstone and FPI. Moonstone has been involved with FSB from the day that the licensing of financial advisors was introduced. Our application forms for licensing were sent to Moonstone for reasons unknown to us. Maybe for their financial gain.What have they ploughed back into the community? Nothing. Who owns them? How are they related to FIA?

The two companies have been sharing R1800 per financial advisor in the country since the examinations started. And there are some financial advisors who have sat for the examinations nine times with no success. Others have passed on due to heart failures, for fear of losing their licenses.

BIAC has asked FSB to give other institutions a chance to run the examinations. BIAC is still waiting.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 6

These are the people who are being kept by their loyal clients in the industry. Some of them are over 80 years old, but their clients want them to handle their retirement benefits as the last lap on their journey of a long established relationship.

FSB has not been able to notice the value of this client centered relationship that has been there for a long time. What TCF is trying to address now, these veterans have implemented long time ago..

This relationship calls for protection by the FSB because insurance companies do not mind losing them. They know that they will treat their loyal clients as orphan cases and allocate them to other reps in their employ.

There is also an element of operating costs for the PDI independent financial advisors. The license fee of more than R5300 plus rep’s fee of R736 per rep is a big cash flow problem to The PDI’s who do not have other sources of income support like their counterparts.

What BIAC has been saying to the FSB is:

That the license fee should be reduced and be made comparable to other professions That FSP should be classified in terms of SMME classification eg, according to their

financial muscle That the limit which has been placed on insurance companies on their FSP license be

removed. BIAC believes that R1.69million is too little for insurance companies.. Calculations show that this amount covers payments for a minimum of 332 reps, and there is no insurance company that has this small number of reps nationally. They have thousands of reps who are technically operating for free.

BIAC has been asking for FSB to remove this ceiling and reduce our license fees. By the way the independent financial advisors are submitting business to insurance companies just like their employed reps. It means that we are making it possible for them to pay their license fees.

And the independent financial advisors are the cheapest way of making money because they do not qualify for any benefits from the insurance companies.

3.5 . COUNCIL FOR MEDICAL SCHEMES(CMS)

The medical industry business has been a closed area of business to the PDI financial advisors. It was a closed business because the employers had the right to appoint a financial advisor to their employees’ medical scheme without consultation with the members. The practice benefited the chosen few.

When the doors were opened for the PDI players, the CMS became the regulatory body.All financial advisors who were employed in the medical industry for a period of one could qualify for accreditation as medical insurance financial advisors. For this accreditation they are expected to pay a biannual fee of R1400 IN ORDER TO KEEP THEIR ACCREDITATION.

The commission on the medical scheme is ongoing as long as the scheme and its members are still willing to be satisfied by the financial advisor. It means that the financial advisor can make a living out

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 7

of this hard earned income. It takes time, money, and energy to sell the scheme to the employer, the employee and in some cases the union.

After all these efforts, some unions and some employers have removed the financial advisors from the scheme, and replaced them with one of their own. More painful when it is done by the union to the black person, just because they have an opportunist who wants to reap where someone has sowed.

The medical scheme companies have also been given an unwritten right to cancel the financial advisors contract without furnishing any reasons and by so doing, bringing sufferings to the poorest of the poor. Some of these medical aids like Bonitas are being led by black people.

CMS has been quiet as a regulator.

3.6 INSURANCE COMPANIES: LONGTERM

The participation of the PDI’s within the independent financial advisors’ space is hardly 25years old. Almost 99% of the independent financial advisors who have survived the industry challenges have not been in their operations for more than 20 years. Reps were forever being discouraged from becoming what was then called brokers. Because they could force the brokers to meet certain production standards.

Now that there is an uncontrolled exodus of reps from the branches, they are now forcing the independent financial advisors to meet production requirements. They are expecting the 70 year olds who are independent to run around looking for business. And if they do not do so, their contracts are withdrawn with production as a reason. The FSB is not aware of this problem and they do not accept this practice.

These 57year olds did not leave the insurance companies by choice. Confusion in the insurance started in the early 90 when out of fear of the unknown, branches in the townships were closed down, reps were moved from one area to another. Successful branch offices were reduced to empty buildings.

Now they are trying to destabilise the independents and causing them to leave their hard earned commissions with the insurance companies.

This practice has to be stopped.

3.7. SHORT TERM INSURANCE

Panel beaters

Short term insurance industry has not been very visible to the PDI financial advisor. Some of these companies ensure that contact details of their senior managers do not appear on their correspondences to the independent financial advisor.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 8

The industry has not as yet opened its doors to the PDI panel beaters. These panel beaters are not accredited as service providers. One will wonder why all of a sudden all panel beaters in town just decided to revamp their offices. Changing them from those dirty offices to posh offices.

Recovery of Access

All short term insurance companies charge excess for any submitted accident claim. That is a part payment towards repairs.

When the accident is not caused by their client, they force the offender’s insurance company to carry the cost of repairs to their clients property and they recover the excess paid by their client.

The problem is that this recovery does not happen in as far as their client is concerned.They keep on coming back by saying that it was not worth recovering it. But the excess is part of the repair costs. How did they force the other insurance to carry the cost of repairs to their clients car?

3.8 Other Area of Concern: Practices

Some insurance companies have created what they regard as empowerment by creating a division in their companies of people who are providing financial advise without the knowledge of regulations. To them, the practice appears to be a pyramid scheme because it’s a game of five. You buy 5 insurance application forms and you have to get 5 members, who must look for their own 5 members. These members must take out insurance policies. Clientele life call them IFA. These IFA‘s are our employed nurses ,teachers, cleaners, gardeners and other employed people.

A large number of our clients have cancelled or surrendered their policies so that they can take a short cuts towards completing the required 5members by replacing their products with CLIENTELE LIFE PRODUCTS. The result being increased lapse rate for the PDI financial advisor who has used his property as security against lapses.

Insurance companies do not give out a broker contract to the person who does not have security. It is not the case with these ones.

Old Mutual tried to introduce the same model that was called CONNECTA, and Momentum Life tried to do the same but after consultation with the financial advisors, it was withdrawn.

IFA is still continuing unchallenged for using black people as stepping stones towards cash flow generation. FSB can force the companies to register these people as FSP.

BIAC is aware of the fact that black people are the consumers of the other advantaged people’s ideas, but if somebody can see through it, let assistance be provided.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 9

Government and all its structures need to give recognition to the financial advisors in their dealings with the community they serve. BIAC is concerned with the fact that all application for data base entry, do not invite financial advisors.

And on the other hand it is the same government which is concerned with lack of savings by the SOUTH AFRICANS.

4. NEED FOR INTERVENTION : FINANCIAL ADVISORS

4.1 Commission

The financial advisor receives remuneration in the form of a commission. No business submission no commission payment. The tied agents that is those who are employed by insurance companies, are expected to meet certain production requirements because they enjoy the benefits of an office, telephone, medical aid, pension fund, hotel booking for training, and advance to some extent if they did not work properly for the month.

Their real income is commission and return of commission paid if the policy lapses.

The independent financial advisor also receives commission for business submitted to different insurance companies. The independent is usually approach by broker consultants from different insurance companies, who ask them to assist in marketing their companies’ products. That is the reason for the independent to market the products of more than one company in their offices.

The broker consultants’ remuneration is linked to the performance of the independent financial advisors in their teams. And, their pressurised into getting the business from the independents. Most of them do not survive the industry because of these pressures. They play an important role in the success of the independent. They provide information about their company, the products, the training of the admin staff and the independent, sharing of the independent’s problems and so on. But it takes time to win the independent to their fold.

The independent does not enjoy any benefits from the insurance companies apart from product knowledge, attendance of road shows, software for quotes and forms which increase printing costs.

Commission is payable as long as the clients has a premium increase on the policy and also if the policy pays monthly advise fees. But when the financial advisor leaves the industry in whatever form, that commission is stopped. All the financial advisors who left the industry due to unforeseen events have lost their money. This money has not been transferred to anybody.

5. NEED FOR INTERVENTION : OTHER PLAYERS

The financial services sector has indirect players , whose core function is, health, communications, mining, clothing, grocery stores, including funeral schemes who are also in the financial sector space. And to the ordinary person on the street, it is difficult to complain about their services because of unknown regulator or ombudsman.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 10

Company Owned Scheme

Health: Private Hospitals have deducted money o a monthly basis from their employees. The purpose of this money was to buy them shares within the hospital after a certain period of time. The hospital created some sort of a loan scheme.These staff members were then retrenched, dismissed, or retired from employment but with no shares allocated to them, and no refunds with interest of their moneys. The company grew their cash flow but underpaying staff with these loan deductions, and they got nothing in the end. Example : MEDI CLINIC

Empowerment Schemes

MTN/VODACOM

Elderly people who are over 70 years have kwaito music playing as a ringing tone.They receive caller tunez, which is telling them that 50cents will be taken from their airtime to payer for what they have unknowingly subscribed to. 50 CENTS is not a small amount of money to these companies’ clients.

And it is difficult to cancel this illegal subscription.

These companies offered empowerment shares to the South Africans, and they returned other investors moneys with no explanation, and reduced the number of shares they had purchased.

The companies are also operating in the insurance space, as a tool to force the client to be their subscriber forever. Not good for competition.

Children are now telling their parents that they owe the cell phone companies money. And that they have to pay them first before they can use their air time. What kind of an adult is the industry trying to create?

Clothing Stores

Clothing stores have also found a way of locking their clients by asking them to subscribe to a monthly magazine with the hope of winning something, or offering them funeral scheme. Clients fail to settle their accounts because of these other deductions which have nothing to do with clothing.

It was going to be better if the funeral scheme was transferable when the clients move to other clothing shops. Example: majority of clothing shops

Construction

Mining and construction companies have also embarked on empowerment programs called BBEE. They have also introduced the same loan scheme that has not worked for a large number of employees who left the companies. Example: AVENG

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 11

Grocery Stores

The grocery stores are involved with the transfer of clients moneys to their family members, and also with funeral schemes. But they are not responsible for any fraudulent activity that is being practiced by their staff members who provide criminals with personal details of the sender.

Demutualisation Shares

The insurance companies that were registered as societies, changed their status by becoming public companies. Their clients benefited from the share allocations.

The insurance companies unilaterally reduced the number of shares that were allocated to their clients and deposited moneys into their accounts.

Funeral Schemes

BIAC as a formation by Africans, is of the view that the schemes, even if there ids goodness in them, have really contributed towards the disintegration of UBUNTU. Death to an AFRICAN child was an unwelcome and respected guest to the bereaved family, and it was also a family unifier.one.

When death has occurred in the family, all elders in the family would be informed about the death of a loved The elders would then come together to draw a plan of action, eg funeral date, financial needs, support systems, and so on.

But now, the financially able family members are now looking for the poorest of the poor in their families and also the neighbours to cover against funeral expenses.

Some of these financially poor family members have complained about this practice. They are claiming that their extended family members who can hardly give them a R2 coin have taken their ID for funeral insurances. They are waiting for them to die so that they can have money and pay their debts.

The companies have taken advantage of this cash cow or cash flow booster by adding things like airtime, grocery, car hire, premium refund, and if nothing is done, they might add bereavement holiday. There are already refreshments at the grave yards.

There are some government and municipal employees who do not have any other policy but funeral scheme. What will happen when they retire?

BLACK INSURANCE ADVISERS COUNCIL ( BIAC) is very much worried about the fading of the black people’s faces from the insurance industry, and the absence of tangible support from the insurance companies even if our aim is to assist in growing the industry players.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 12

Experienced and successful financial advisors have left our industry

6. CONCLUSION

FOR TRANSFORMATION IN THE FINANCIAL SERVICES INDUSTRY TO HAPPEN ALL OF THE ABOVE NEED TO BE TRANSFORMED:

1. Insurance Industry Challenge/ Trap

All financial advisors must be treated equally and fairly. Other ways of earning income must be shared with all financial advisors

Insurance companies should refrain from aligning with certain insurance associations so that they can be able to assist all the players

Insurance companies are encouraged to invite financial advisors to serve on their boards because they know the challenges that are faced by the financial advisors

2. ASISA

Be more transparent Know that committee members who are endorsing no fee payment, are doing so because

they are paid salaries Involve PDI’s in consumer education Open access to all committees

3. SAIA

More involvement with PDI’s Involve PDI’s in consumer education Be accessible

4. INSETA

The only SETA that can create employment and reduce the age 57 problem Be made to account for the learners who are placed with call center companies and other

companies Be made to account for lack of growth of smmes in the financial sector Minister to force INSETA to invite representation from all insurance associations

5. FSB Try to profile the financial advisors and match the products in line with their capabilities Make committees accessible to all associations, taking into consideration affordability Be supportive to the benefit of the client Ensure that INDEPENDENT FINANCIAL ADVISORS are not treated like reps Involved PDI’s in education programs

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 13

Be careful of ideas coming from advantaged committee members

6. OTHER AREAS OF CONCERN

Compel Clientele Life and Other players to license these IFA members with FSB Need investigation by competition commission Government must start by giving recognition to the financial advisor

7. COMMISSION

Payment of commission should be guaranteed the same as having to repay the commission paid

Allow independent financial advisors to work as independent and not treat them like reps Protect the income of independents who are old and just being kept in the business by

their clients who are going on retirement. Don’t make them loose what they have toiled for, for years.

8. Indirect Players

Client should be allowed to pay premiums directly to insurance company when the account has been settled

Magazines must be stopped as soon as the account has been settled The regulator must be known

At the end of our lives, the three players will be the only ones that we would be looking for:

1. The funeral undertaker

2. The financial advisor

3. The word of God

Thank you for this opportunity, and to those South Africans who asked for this time to be blessed.

Executive : MS MPURU R RAMOTEBELE S NXUMALO I MOHLAPING L MATHOBELA MW MALGAS Page 14