Direct Insurance, is it the right move?

We as consumers are being bombarded with advertising, mock TV shows s and call centre telling us that it is better to insure directly and cut out the “expensive” middle man. A large emphasis is placed on the fact that they are irrelevant in the short term insurance realm and even more that they are a pure burden to the consumer. A recent advert comparing a broker to a fish and chip sales person is a clear indication that little regard is being placed on the role of financial advisors and brokers within the short term insurance industry.

The prudent question I believe we need to ask ourselves is whether we believe this propaganda and whether we would want to trust a call centre operator with insuring our valued assets and now even our lives. Let’s take the following points into consideration when unpack direct insurance for ourselves, ignoring propaganda.

It does not take a rocket scientist to understand that the very call centre operator assisting you in obtaining your insurance is in fact a low level employee, irrelevant of earnings, within the company. They are selling high volumes of policies and therefore making it impossible to remember a little thing like your name. If you have a dispute on your claim who would you speak to? The answer is very simple, their legal department. One young man, who alleges on Hellopeter.com that he was effectively bullied by a large direct insurer’s in house legal team into signing documents that eventually led to his claim being denied is proof of that.

Now no one is claiming that the young man is talking the truth about the matter or that the insurance company is in fact bullying clients into not paying claims, the fact that is being brought across is merely that when a dispute arose his communication point was moved from the friendly voice at the call centre to the legal department, an intimidating place for any non legal professional.
Now bringing that into comparison with a broker environment one needs to understand that your broker would be your port of call, not his legal department. If it is warranted that a legal department of an insurer has to get involved you would at least be “protected” if not just escorted by your broker. Your broker is also an individual with a larger vested interest in your well being and naturally concerned with you cancelling other policies with him. He or she is not just a voice.

I would like to re-iterate that this article is not aimed as an attack on direct insurance, although I must convey my surprise that the broker industry has not attacked back with similar vigour. It is merely aimed at providing some perspective within the propaganda.

Leading by Example

We all lose faith in our idols and they all disappoint us at some stage. Let’s look at world golfing sweetheart Tiger, who by latest count, is already 11 over par with extramarital affairs, Joost “powdering” his nose and a myriad of senior people drunk driving suburbia into a “non-walled” community. However I do think it is prudent that we look at ourselves. We literally gulp up gossip and so called failure of moral value stories but when a Government companies are crumbling left right and centre we just shrug and say something like “This is Africa”.

Julius Ceaser, was renowned and respected for the many battles he fought in the front lines, draped in his customary (very visible) red cloak. Many battles was perceived as lost till Julius arrived with a couple of men and turned the spirit of his soldiers and by that, the outcome of the battle. South Africa is currently fighting a battle against poverty, low moral fibre, despondency and a reputation of fraud and quick fix mentalities. In the forefront on this is the catastrophic board failures at the SABC, Transnet, Athletic SA and basically every state owned enterprise. Is this still the overflow of the Zuma/Mbeki power shift leaving us destitute and confused or is it just pure poor management and poor corporate governance. The more prudent question in fact should be when is our leaders going to put on a red cloak and turn public moral and allow us to win this battle.

Corporate Governance??? This is one of the new buzz words that is uttered over our airways, business corridors and board rooms. However can we see proper corporate governance within our institutions? The red cloak in this instance can be worn in the form as the newly published King III report and the simple application of it. With so many new boards being elected in and so many interim boards heading our transport infrastructure, judiciary, our television broadcasts and even our sports the implementation and application of proper corporate governance via King III should be simple mind set to entrench in these new boards. With the promulgation of the New Companies Act, which is due to come into effect in 2010, we as a general public should actually challenge the Government to take the proverbial tree out of their own eyes before investigating the small thorn in the private sectors eyes.

So to conclude. Make proper ethical, transparent and honest business the norm of government institutions. Make open communication with ALL stakeholders mandatory and stop hiding behind bureaucracy and eloquent language. Is it not the very government that made Plain Language a requirement under the National Credit Act, The Companies Act of 2009 and the Consumer Protection Act.

Plain Language

Plain Language is now a requirement under the National Credit Act, The Consumer Protection Act as well as the Companies Act of 2008. The only problem is that the definition, as contained in these acts, are in anything but plain language. Although writing a document in plain language sounds incredibly simple, it is however not that simple.

All South African Banks made a commitment to distribute their documents in plain language years ago, with a self imposed target for October 2000. Now not to venture a guess, but I dont get my correspondence in what I term as plain language. So why is it so difficult to write a document in plain language?

Well firstly lets look at the authors, and lets face facts most of them are legal professionals. From the first day at varsity they get taught to write all there documents in Legal English (a sepreate subject for your LLB). This is basically to teach students to write in "high" language and to create ambigious statements, allowing multiple interpretations. So is it our tertiary education system letting us down or is it the ego of our legal profession? I will leave that decision up to you.

That said the important thing that all of us must recognise is that Plain Language correspondence is no longer a mere virtue. It is a requirement in terms of 3 seperate pieces of legislation. This changes the ball game dramitacally within the corporate business world.

S0 I would like to humbly request the legal profession, tertiary eduction services and business owners to focus correspondence and training to write correspondece towards plain language. Paying a fine, having a contract rescinded or losing accreditation is just not worth looking clever in my mind.

Ignorance or Ignoring

King III, the good for proper corporate governance, was published on the 1st of September 2009 and the codes apply to all entities. This is very different to the old King I and King II reports that was only applicable to public or listed entities. The question I however want to ask today is whether the property syndication industry are working along these ethical guidelines.
I firmly believe that they are probably not. This, to me, is evident from the constitution and guidelines of the Public Property Syndication Association (PPSA) that does not mention compliance to any of these codes. Two of the syndication companies I have had dealings with namely Blue Everest Investments and City Capital (Capital Investments), both of which are now defunct never conformed to King I or King II and it did directly apply to them as public companies. Further the Financial Services Board (FSB) also does not mention it at all as one of the 1.8 licence requirements.

Now the next question we have to ask is why? Is it ignorance or just ignoring it. Is it because the cost of compliance is excessive? Well before you answer that question for yourself, let’s look at why compliance to these codes are, at least in my opinion, important.
The King reports are all about conducting an ethical and transparent business. It is about disclosing all the facts to all stakeholders, giving access to required information, it is about accountability of company directors, it is about thinking of others. The codes also places strong emphasis on independent directorship and active shareholder participation. In conclusion it is about playing open transparent cards and honest commentary to everyone involved and respected writers like Bruce Cameron and Deon Basson has been claiming that is the last thing that they are doing.

Now that you have some information to make up your own mind on why the property syndication industry may not be applying these codes let’s focus on being active in demanding the application of the codes. Financial Advisors, Regulators and the public in general should demand the application of King III in all syndicated companies and fractional ownership schemes so that we insure that it is not avoided by ignorance. This will then make it extremely clear which promoters is ignoring ethical, transparent and honest business practices.

If you want to find out more about King III, the New Companies Act or the Consumer Protection Act visit http://www.sinkorswim.co.za/ or contact john@sinkorswim.co.za

Property Syndication and King III

Although King III was only “launched” on the 1st of September this year we have to already start asking whether the Property Syndication is gearing towards the compliance of King III. That said it may even be extremely prudent to ask if they have ever been King I or II compliant. As the aim of the King reports was directly related to Public and Listed companies.

A lot has been said about the Property Syndication industry with a wave of allegations made against the operators. Some warranted and some maybe not. I believe that most of the attacks have been along the wrong avenue. We have seen some esteemed writers hammering the syndication industry about shareholder communication, so called inflated returns and poor and expensive management principles. Although these items are obviously extremely relevant and more than just idle points of discussion I believe that more emphasis should be placed on whether property syndication promoters subscribe to the King II and now King III rules of governance.

The basic reality is that most may not even know of the King reports. For example the directors of the now defunct Blue Everest Investments never even attempted to subscribe to King I and II and I believe that this was due to ignorance to its existence. Is that an excuse? I don’t think so, Asset Manager City Capital also never attempted compliance to King. Why not? Is it pure ignorance from the public, the promoters and from brokers alike? Is it that the so called governing body ,the Public Property Syndication Association better known as the PPSA, does not even mention compliance of King in their constitution? Or is it because we never demanded it?

In an industry that is bombarded by negative press brokers still keep selling their products and we are led to believe that it is merely the high commission being paid that motivates selling the products. I am however of the opinion that the concept behind the industry is solid and could be a fantastic investment for investors, but only if the syndication industry is more aggressively regulated by us, the public. Having an FSB number is no longer enough to protect the public, as clearly evident in the Capital Investments debacle. Capital Investments was/is a fully licensed Asset Manager and millions of rands are alleged to have been lost in this investment platform.

The focus for the immediate future should be to look at items like proper governance, ie. King III and the broker industry should demand compliance to these codes.

To find out more about the New Companies Act, King III and the Consumer Protection Act please visit www.sinkorswim.co.za

Consumer Protection Bill and the Services indusrty

The Consumer Protection Bill will set the benchmark in responsible marketing for service providers in South Africa.

The consumer protection Act, due to be promulgated in October 2010 in South Africa, is aimed at setting a national benchmark for high standards of marketing and responsible sales and advertising. The act affords a myriad of protections to the consumer with a strong emphasis on the previously disadvantage participants that have been exploited by some business sectors.

Companies providing service to the public have to start now to get themselves in line with the new Act as the consequences of not being in line could be dire.

Just some important provisions in the act for service providers

• A contract would be interpreted in favour of the consumer, in the event of ambiguity allowing for more than one reasonable interpretation. Although this reflects the existing law, it is now an unalterable right.
• Any exclusion within the contract would be measured against whether a reasonable person in the position of the consumer would have expected such exclusion, taking into account the contract's contents, the manner in which it was presented and the circumstances around concluding it. Contract exclusions must to be drawn to the consumer's attention.
• Service Providers will not be allowed to take advantage of the fact that the consumer is unable to understand the terms of the contract being concluded with it as a result of either physical or mental disability, illiteracy, ignorance or inability to understand the language of the contract.
• The Terms of the contract may be ruled as unfair, unjust or unreasonable if they are excessively one sided, contain terms so adverse to the service provider as to be inequitable, or if the consumer was misled by the service provider company.
  The terms of the contract must be in writing and in plain language (see definition of plain language at bottom).
  

In conclusion, the New Companies Act places a huge responsibility on service providers to act responsibly with there consumers and to ensure that all contracts are easily understandable and properly explained.

To find out more about the New Consumer Protection Act visit www.sinkorswim.co.za for seminar dates.

Plain Language – In essence plain language means that you should write documents (advertising or other) in such a manner that it can be understood by the lowest potential target market.