The short-term insurance market has traditionally focused on a handful of essential retail and commercial lines: for consumers the main forms of cover have been for household possessions, cars and homes; for business owners there has been asset cover, business interruption cover and legal liability cover.
But this is changing, and while the “essentials” will remain core to their operations, short-term insurers are expanding into niche markets, a move that is advantageous both to insurers, because it diversifies their business, and to consumers, because it fills gaps in protection against expenses and losses that have become increasingly difficult to fund out-of-pocket.
In a recent opinion piece, Cornel Schoeman, the chief operating officer of Genric Insurance, said several external factors were driving the development of more specialised products.
“Global and local economic and socio-political factors, weather catastrophes and climate change, crime and deteriorating public infrastructure are all exacting a heavy toll on traditional insurers and consumers, as claims and the costs of cover of the traditional property, motor and assets insurance escalate.
“There are two key drivers behind the growing demand for niche solutions: consumers and business owners are looking for the certainty of cover for very specific, and typically unusual, risks, and insurers and brokers are looking for ways to differentiate in a highly competitive market as well as de-risk their traditional portfolios.”
The relatively new lines of short-term insurance include:
• Gap cover. As medical costs soar and medical schemes battle to contain the costs while trying to keep membership affordable, and with many financially distressed consumers switching down to “core” medical scheme options, gap cover is becoming increasingly popular. This covers the “gap” between what specialists charge for in-hospital services and what medical schemes pay out, to a maximum of R191 000 per beneficiary per year.
• Primary health insurance. Medical scheme membership and private health care remains unaffordable for a huge portion of the population, Schoeman says, and so insurance companies have “stepped in to offer more flexible and affordable coverage options, especially in the primary healthcare space”. He says plans with family-specific benefits that offer unlimited GP visits are in high demand. Primary health insurance plans are becoming popular as a more affordable alternative to medical scheme cover among employers offering benefits to their employees.
• Mechanical warranty and service cover for vehicles. These extend cover beyond the expiration of manufacturers’ warranties and maintenance plans on new cars. Schoeman says two factors are driving growth of the products: people are keeping their cars for longer, and when they need to replace them, they are increasingly looking at buying “used” instead of new.
• Personal cybercrime insurance. Consumers are increasingly at risk of cybercrime, online transaction fraud and identity theft. While this type of insurance has existed for commercial entities for some time, it is a development in the consumer space, protecting individuals’ personal data and bank accounts from fraudulent online purchases, malware or viruses that harvest personal data, and phishing scams.
• Pet insurance. While pet medical aid has been around for many years, it has really taken off fairly recently, largely owing to the soaring costs of treatment. “An analysis of our pet insurance claims shows that costs for veterinary treatment are on the rise – claims for bills upwards of R15 000 are increasingly common – putting the cost of veterinary care in the realm of private health care,” Schoeman says.
• Informal housing insurance. This is an innovative new product aimed at the low-income markets that recognises the need for affordable buildings and contents cover for shacks, township and rural homes built outside formal building regulations.
Schoeman says the growth in niche insurance products can be also attributed to advancements in data processing and technology. “The availability of more data and advancements in technology, including data analytics and artificial intelligence, have enabled insurers to better assess and understand specific risks,” he says.
“People respect the value that specialisation provides at a time when everything else seems so out of control and uncertain. We expect this trend towards specialisation and niche risk solutions to continue in our radically changed world where there is a far greater appreciation of just how unpredictable and far-reaching risk can be,” Schoeman says.