Corporate governance practices of the insurance industry in South Africa

Abstract

The insurance sector plays a critical role in any economy by its very mechanism of risk transfer and savings mobilization. It thus performs a critical role in intermediation by fostering the liquidity of the financial markets. This in turn ensures that capital is transferred from surplus units to deficient units of the economy who are in need of funds for the undertaking of capital projects and thereby spurring productivity. In the aftermath of the 2007 to 2009 financial crisis the insurance industry image was tainted. As such, the observance of good corporate governance tenets has now more than ever before become quintessential and also a prescription by regulators. The purpose of this paper is to explore the corporate governance practices (both internal control as well as regulatory measures) that are prevalent in the South African Insurance industry. This paper utilized qualitative research methods and lend itself to document analysis of company reports that the insurance companies submit, as well as the Acts and industry codes that governs the insurance industry in South Africa. The Atlas.ti software was used to analyze the documents. We find evidence that insurers are at various stages of embedding good corporate governance practices. In the aftermath of the financial crisis, the insurance companies by and large have strengthened their internal control systems. They have also complied with regulatory directives and are grappling with the implementation of Treating Customers Fairly (TCF) as well as Solvency Assessment Measurement (SAM) which are market conduct and prudential regulations respectively. Further they also subscribe to the King I, King II and King III frameworks of corporate governance. However we wish to caution against “over regulating” this sector as this could stifle innovation.