| National Treasury | 12 June 2012

1. What does Twin Peaks Mean for the ST Insurance Industry?ISMAIL MOMONIATDDG: TAX AND FINANCIAL SECTOR POLICY(email: ismail.momoniat@treasury.gov.za)THE INSURANCE CONFERENCE 2012, Sun City | National Treasury | 12 June 2012

2. G20 Response to 2008 Financial Crisis • G20 focus has been on strengthening macro-prudential and micro-prudential measures. • Financial Stability Forum transformed into Financial Stability Board. • South Africa represented on Fin Stab Board. • Focus on systemically important financial institutions (SIFIs), both global and domestic. • Initial focus on banks, but now also on insurance sector. • G20 has also adopted principles on consumer protection and on innovative financial inclusion • Three pillars of protection, access and education

3. South Africa’s Response • Greater focus on macro-prudential risks and establishment of Financial Stability Oversight Committee (FSOC) jointly chaired by Min of Fin and Governor of SARB. • Shift to twin peaks system of regulation, with prudential supervisor under SA Reserve Bank, and Fin Services Board transformed into a market conduct supervisor. • Operational independence of supervisors. • New legislation for twin peaks in 2013, but already implementing many measures even as we prepare for twin peaks • Complementary measures on consumer education and financial inclusion

4. Implications for ST Insurance Industry • Prudential supervision will be strengthened through implementation of SAM framework. • Strengthening supervision over groups. • New legislation this year includes upcoming Insurance Laws Amendment Bill, Financial Services General Laws Amendment Bill etc • Pending legisalation next year to implement twin peaks system • Pending legislation next year to improve the design of the ombuds system and ensure that it operates independently, without any interference, and includes governance and funding reforms

5. PRUDENTIAL COMPLIANCE IS CRITICAL, BUT FOCUS MUST BE ON CUSTOMERS!!! • NT view is that the ST Insurance market conduct practices are poor. • NT view is that our supervisors must be much TOUGHER than they have been in the past. • Insurance will only be exempted from the Consumer Protection Act if the industry adopts HIGHER and TOUGHER standards. • Industry must EARN the right to exemption, by demonstrating superior market conduct practices. • Why should government consider compulsory insurance for say motor vehicles if the industry is not transparent about its costs and claims procedures? • Has the industry really looked at how it can provide more affordable policies? • TCF is just the start, and business models must do more to incorporate it’s principles, and break from past practices

6. NT CONCERNS Most ST insurance companies are not really prepared to incorporate TCF principles in their practices, and are still stuck to a compliance-based approach ST Insurance industry is behind the curve on its focus on fair treatment of customers. Dubious industry practices and defaults for example: only revising motor car value if prompted, compulsory alarm provisions for households etc principles of proportionality and fairness not applied in many cases, as system is designed to reject claims in total NT considering comments on health insurance & med schemes demarcation - if insurers want to compete then must do so on same terms as medical schemes – no cherry picking good risks!

7. Obliging greater transparency and consumer-friendly approaches NT believes that market conduct supervisors must move swiftly to oblige public disclosure on relevant information, including on claims received, claims rejected for each company. Supervisors will have the powers to force compliance and higher standards. We need more simplified products with standard terminology and comparability. Defaults must be changed to support customers Ensuring that all players are FIT and PROPER at ALL times

8. Some Current Challenges How does the industry become more accessible to the low-income market? Micro-insurance? Does the industry have more affordable products for the small businesses? How can the ST industry commit to tougher Financial Sector Charter targets?

9. Reforming the Ombud System NT does not believe that industry ombud is sufficiently independent in ST Insurance Industry. Governance and funding over ombud must be free, and SEEN TO BE FREE, from any interference. NT considering a system of compulsory levies to fund the operation of ombud offices, together with minimum norms and standards. Appointment and re-appointment processes of ombud must be free from interference. The number of complaints going to the ombud reflects on the failings of internal complaints procedures of companies.

10. Beyond Mkt conduct: Has ST Insurance really transformed to reflect the new SA realities? The ST Industry appears to be stuck in past practices. Is the industry really open to new challenges & change? Are ST insurance products appropriate for the needs of township dwellers, funeral needs, younger market? Are pricing models really free from redlining? Who subsidises who? Is there sufficient new blood entering the leadership ranks in the insurance industry? Can we open up a dialogue to reform and modernise the short-term insurance industry?

11. Thank you