In July, the Isle of Man regulatory body issued an addition to its ‘Code of Conduct’ consultation findings, in order to “enhance the fair treatment of policyholders”, by ensuring that any conflicts of interest that arise during the insurance sales process are “disclosed and thereby mitigated”.
But how will the proposed changes affect both life companies and the intermediaries that sell (or recommend) their products? Gary Robinson takes a look at the evolving world of a small island just off the north west of England, which just may change forever the way that advisers across the globe do business.
The Isle of Man Financial Services Authority (IOMFSA) began its ‘Conduct of Business Code (Long-term Insurers) consultation in 2015, adding facets to the consultation in July this year.
The action was precipitated largely in an attempt to ensure that this small but increasingly important financial services jurisdiction had its own house in order, but in so doing so has perhaps shone a rather harsh light on the rest of the world’s own regulatory activities.
“I believe that greater transparency will actually create greater market opportunity,” says David Kneeshaw, chief executive at RL360°, the offshore investments and savings provider.
“More robust regulation helps us to move centre stage in the developing world market.”
Kneeshaw says that he believes that the “good life companies” and the “good advisers” are going to be winners through better regulation, and that over time the Isle of Man (IoM) ”will also be a winner because it will be seen to be a good quality jurisdiction and a good home for customers’ money”.
But he also has a warning for other parts of the world operating in the life industry.
‘Dodgy second tier jurisdictions’
“Those jurisdictions that do not follow suit will be seen as dodgy second tier jurisdictions that are seen as not worthy of looking after good quality clients’ money,” he says.
“At the moment I see a two paced approach happening. I see IoM setting itself up as the blue chip jurisdiction of quality and other jurisdictions like Cayman, Mauritius and Guernsey in danger of being seen as second tier dodgy places to do business.”
Tough words, but Kneeshaw is not afraid to tackle the push for transparency in the industry head on.
Paul Stanfield, chief executive of the Federation of European International Financial Advisers the non-profit trade organisation representing English-speaking advisory businesses active in Europe, shares Kneeshaw’s view that the IoM’s proposed Conduct of Business Code is part of what could be described as “unstoppable evolution”.
He told International Investment that he’s been advising his trade association members for the past three years or more on efforts by an organisation called the International Association of Insurance Supervisors, to bring into global use what the IAIS calls its “Insurance Core Principles”, which are similar in concept to the proposed Isle of Man Conduct of Business Code.
Stanfield adds, in his opinion [the new IoM code] actually represents a “fantastic opportunity for progressive IFA companies that plan ahead, and embrace the new environment that will result”.
Leonard Singer, [Tynwald] member at the Isle of Man Government’s Department of Economic Development with responsibility for Financial Services, said that the regulatory moves are a “positive step” for an already successful insurance sector.
“The Isle of Man is a key international partner in the insurance field and is well-known for its regulation and innovation,” he said.
“The Code [of Conduct] is not designed to make insurers responsible for advisers or the distribution process, but it does look to ensure that the advisers for whom insurers accept are reputable.”
RL360°’s David Kneeshaw agreed and added that he has already seen certain advisers looking at their business models, and considering whether to move away from an upfront commission model internationally. This will not, he says, be an overnight change.
“I am actually very optimistic about the future of the industry. What I believe will emerge is stronger life companies with good governance, good systems, good capital and good management teams. These companies will do well and some of the fringe players will do less well.
“I likewise think that well run adviser firms with good governance, financial and management structures, that are thinking about the future will also do well. Those that don’t tackle the issues will struggle over time.
“All of these jurisdictions will in time have to do the same. The question is whether they do it quickly and are seen to be good or not,” he says.
Kneeshaw also agrees with Stanfield’s earlier comments and believes that the UK market is not doing badly post RDR. Indeed the “good advisers” tell him that they are actually doing far better than pre RDR.
Looking internationally, the question also arises around whether all clients fully understand the nature of experienced investor products or non-retail funds.
“I am not convinced that they do and the IoM regulator is not convinced they do,” adds Kneeshaw.
“The IoM regulator is saying to the life company that if you are going to allow what is probably a retail customer to go into an expert fund of some description, then boy, you better be absolutely certain that the client knows what he is doing.
“We don’t allow that already and put a ban on non-retail funds some time ago. I believe that we are the only one.”
Change affecting future clients is one thing, but change affecting legacy business is something else, and this puts a spotlight on how the industry of the future deals with the practices of the past.
“I am happy to speak about what we have done,” says Kneeshaw.
“I don’t see RL360° will have to look back. I can’t speak for other companies but the difference between us and some of the old-fashioned direct sales companies in the UK, is that we don’t own the advice process.
“We don’t have a direct salesforce model. We have a relationship with the adviser but the adviser acts for the client – he [or she] is not acting for us. There is a very important philosophical difference.”
Kneeshaw points to the fact that RL360° has been independently audited as part of its management led buyout in 2013 and acquisition of Clerical Medical in 2015.
Looking ahead, on the international front Kneeshaw sees a bright future.
“Our strategy is very clear,” he says. “It is three pronged – one is organic growth, two is exploring new areas of new business, for example like opening our Kuala Lumpur office and three is acquisitions. We’ve done one acquisition with Clerical Medical and there is firepower to do another one.
“The industry is at the stage that it wants to grow up and the good advisers and the good life offices just want to get on with it,” he adds.
The Isle of Man is home to a number of major life company insurance businesses, including RL360°, Hansard, Canada Life International, Friends Provident International, AXA, Old Mutual International and Zurich International Life.
The consultation: ‘Managing Conflicts of Interest in the Insurance Sales Process (Long-term business) was issued to build on the draft ‘Conduct of Business Code (Long-term Insurers), issued by the Isle of Man Financial Services Authority in 2015.
With the deadline passing on 2 September, findings of the latest consultation will be released soon with a new Conduct of Business Code, which will set out how Isle of Man insurance companies are to handle business they receive from intermediaries.
The life industry has had the opportunity to voice its opinions. Now it is the turn for the non-life organisations, with a further consultation taking place until the end of 2016.
This article originally appeared in the print version of International Investment’s October magazine.