By Reneilwe Mthelebofu – Communications and Language Services (FSCA)
The culture of an organisation is the collection of values, expectations, and practices that guide and inform the actions of all employees. It’s a collection of traits that make an organisation what it is and if taken seriously, can lead to improved performance. In acknowledgement of this important concept, the FSCA was once again the proud sponsor of an episode in the Insurance Apprentice 2023 - a fascinating series that keeps contestants on their toes with insurance sector related tasks. This year’s task was centred around culture.
The Task In Brief
WeAreAfrican is a (fictitious) licensed insurer in South Africa, authorised to develop and distribute life insurance products: individual death and disability policies.
The insurer entered into a full binder and intermediary arrangement with ForthePeople, a Financial Service Provider (FSP), and subsequently developed a life insurance product offering specifically geared towards the lower income segment of the market. This product offering initially seemed to be well received by the targeted communities. However, a year after the launch of this product, an influx of complaints against WeAreAfrican and ForthePeople: claimants struggled to have their complaints resolved by the insurer, so they resorted to escalating them to the Financial Sector Conduct Authority (FSCA) and the Ombudsman for Long-Term Insurance (OLTI).
Based on the complaints, the FSCA decided to increase its supervisory oversight over WeAreAfrican, flagging it as a high-risk insurer. Upon consulting with the Prudential Authority (PA), the FSCA also learned that WeAreAfrican is dangerously close to breaching their minimum capital requirements and is about to be placed on heightened financial reporting, with the PA concerned about the accuracy of their financial statements. It also appears that the current CEO approved several highly volatile investment transactions over recent years that have exacerbated the insurer’s deteriorating financial position. The PA was also informed that the CEO (who has been in the position for over 15 years) has tendered his resignation with immediate effect.
WHAT WAS REQUIRED OF THE FOUR CONTESTANTS
Each contestant was appointed to take over as CEO of WeAreAfrican. The Board of the insurer was concerned about the increasingly intrusive scrutiny from both the FSCA, and the PA. Contestants were requested by the Board to design and implement a six-month remediation strategy for improving the company’s overall performance. The FSCA expected contestants to provide a roadmap for embedding a more customer-centric culture across the organisation within the next eighteen months. For their first supervisory engagement with the FSCA leadership team, contestants were required to:
- Provide an assessment of the key cultural drivers within the organisation that have resulted in the insurer’s current predicament.
- Outline the core elements of their roadmap for embedding a more customer-centric culture across the organisation, including specific controls to mitigate against potentially poor prudential and/or conduct outcomes in the future, the resources required and how progress will be monitored and reported on as CEO.
WHAT WAS THE INITIAL THINKING BEHIND THE CONCEPTUALISATION OF THE FSCA TASK?
The FSCA identified real examples of poor conduct from various insurers and put them together into one example to create a profile of an insurer that poses serious conduct and prudential risks. The idea was to create a task whereby contestants could identify how specific drivers of culture within the institution may have led to the problems facing the insurer, and what potential improvements would be necessary from a leadership perspective to remediate the challenges identified in the interests of customers. The effectiveness of an insurer’s culture may be assessed by looking at how all aspects of the insurer’s business (whether leadership, governance, operations etc.) support and promote fair outcomes for customers.
Looking at how the culture of financial institutions can result in good or bad conduct or prudential outcomes is becoming of increasing importance to regulators internationally. This is also a targeted focus for the FSCA as we try to understand the extent to which institutional culture properly enables and supports the embedment of good conduct and fair customer treatment throughout an organisation’s behaviours, decision-making and practices.
WHAT WAS THE FSCA LOOKING FOR FROM CONTESTANTS AND WHAT DID THEY EXPECT TO SEE?
Through careful examination of the case study, contestants needed to consider and identify key drivers (behavioural and decision-making factors) that caused the entity to be financially unsound as well as the behaviours and decisions that led to poor outcomes for policyholders. Once this was achieved, contestants needed to come up with an implementation plan to shift the culture from “ineffective” to “effective” in order to ensure the consistent delivery of fair outcomes to policyholders throughout its processes. It was also important that the contestants could explain why they would prioritise or implement certain changes and demonstrate how those changes would potentially improve the current situation.
The FSCA’s approach to conduct is increasingly outcomes-based and therefore the answer could have varied in terms of what actions the contestants proposed to implement, as long as these actions were aimed at the desired outcome of ensuring fair treatment for customers. Since the contestants had to step into the role of the CEO, an important component was to demonstrate the role that leadership plays in setting and promoting the desired culture across the organisation. The winning contestant was able to demonstrate this by sharing his own personal story and linking his proposed action plan to his personal values and sense of purpose, which would drive the vision and direction of the organisation.
The biggest clue that most contestants missed was using the background or pre-reading material, particularly the international paper on insurer culture. This material provided a great foundation for contestants to link specific cultural drivers with examples of poor outcomes contained in the case study. An important piece of advice for future contestants would be to pay more careful attention to background material as it can help very much in formulating an appropriate response to the task. In our follow-up story, we will unpack examples of further issues that could have been explored by contestants. To watch the full episode, please click on the link below:
Watch the exciting episode of The Insurance Apprentice in full by clicking on this link
https://www.youtube.com/watch?v=cyvQjn20VNs | 
