South Africa’s stringent regulatory environment that governs the financial services and insurance sector can make it challenging for companies to bring innovative technology, ideas and products to the market, but there are ways around this.

This is according to Justin Naylor, MD at specialist risk insurer iTOO, who says that the current regulatory landscape could be a double-edged sword for the insurance industry, forcing establish companies and start-ups alike to adopt a creative approach to doing business.

“Despite its major thrust being to secure the financial services and insurance sector and to bring about financial stability, South Africa’s very strict regulatory environment might have the unintended consequence of stifling innovation within the insurance industry,” he says.

“There are several pieces of legislation that govern the insurance industry in South Africa. As a result, this has driven up the cost of compliance to almost unsustainable levels, thus to some extent curtailing spending by companies on innovation.”


SA down in the rankings

Currently, there are some 120 different pieces of legislation that businesses in South Africa have to adhere to. Naylor points out that South Africa is currently ranked 84 among 190 global economies in terms of ease of doing business, citing the latest World Bank annual ratings. The country’s ranking has deteriorated to 84 in 2019 from 82 in 2018.

The World Bank’s Ease of Doing Business Index ranks countries against each other based on how conducive the regulatory environment is to business operation and the protection of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.

“While the strict regulatory environment – especially within the insurance sector – is certainly a good thing, it does make it difficult for smaller players and new entrants into the market to comply with all the legal requirements and to shoulder the financial burden of compliance,” says Naylor.

“We know that research and development involves investment of time and money by these institutions, so it is often the case that resources meant for innovation are diverted towards focusing on areas of compliance with the different pieces of regulation.”


Finding a way around challenges

As such, many companies are finding ways around this by, for example, partnering up with existing and established players and adopting an umbrella approach to share and manage functions such as administration and human resources, while being able to push innovative ideas and solutions through the established organisation.

“Some established insurers, including iTOO, are specifically seeking out experts in various fields and bringing them on board, allowing them to piggyback off their services, creating an environment that fosters innovation and allows new ideas to thrive,” Naylor explains.

This approach is often adopted by underwriting managers, who are not allowed to engage clients directly, but act on behalf of an insurer with an underwriting license. These underwriting managers can in effect assist start-ups to bring innovative and creative ideas into a highly regulated environment, which would otherwise be inaccessible to the smaller player.

“While the regulatory environment might be quite stringent within the South African insurance industry, innovation must continue to meet evolving customer needs. Companies must simply be creative in their approach and ensure that they can sidestep the regulatory burden,” Naylor concludes.