This article was first published in the 3rd quarter 2018 edition of Personal Finance magazine.
“We believe the industry will be influenced and impacted largely by economic activity, client behaviour and political, governance and regulatory change,” says Edward Gibbens, executive head of commercial and personal at Santam.
Santam expects a transition in virtually every aspect of client behaviour and market trends and predicts dramatic changes in consumers’ value systems and expectations with regards to accessibility, speed of delivery and geographic availability of financial products.
But the greatest change will be driven by consumers who insist on interacting with financial services firms entirely on their own terms. “Twenty-first century consumers are accustomed to simplicity, convenience and ease of use,” says Christelle Coleman, executive for high-net-worth solutions at Old Mutual Insure.
“They are digital natives, completely at home on digital platforms and used to engaging and conducting all of their business online”.
She predicts that the future insurance landscape will be punctuated by rapid and unpredictable advances in technology, including artificial intelligence and robotic process automation.
It will take time for insurtech start-ups to gain a foothold in the domestic insurance market. Until then the market for personal lines insurance cover will be dominated by established short-term insurance brands, both direct and traditional.
The direct category sells more six of every 10 personal lines policies and includes the likes of Budget Insurance, King Price, iWyze, MiWay and OUTsurance. Traditional brands such as Bryte, Hollard, Old Mutual Insure and Santam continue to sell personal lines policies through their respective broker distribution channels.
Don’t look only at price
Are consumers still getting a good deal from their insurer and how can short-term insurance brokers help them to achieve an appropriate mix of premium and cover? One of the concerns raised by brokers is that consumers focus on price rather than the level of cover they are purchasing. Price is not everything and consumers should buy insurance keeping the Afrikaans adage “goedkoop is duurkoop” in mind.
“Clients should consider how the insurer interprets the wording of its policies and how it handles claims rather than obsess over cheaper monthly premiums,” says Derrick Saaiman, a broker based out of Rustenburg. He says brokers will have to adopt new technology to save time and improve underwriting outcomes if they hope to grow their personal lines portfolios.
“There will always be those who sell personal insurance incorrectly, using mechanisms such as lower excesses and excess buy-downs to reduce premiums,” says Olyott. A more sensible approach is for insurers to encourage their policyholders to take every step possible to avoid or mitigate risk. Olyott says that consumers, insurers and insurance brokers will have to focus on “the basics of good risk management” to ensure the longer-term sustainability of the sector.
“The best way to keep insurance premiums affordable for our clients is to manage the risk pool and enable our clients to improve their own risk management,” agrees Gibbens.
A common focus among insurers is to achieve cost savings in their overall operations rather than passing extra costs on to the consumer. “We continue to reduce claims costs by adopting the integration of more advanced automation, fuelled by software applications that run automated tasks, also commonly referred to as ‘bots’ as well as machine-learning algorithms,” says Coleman. “While we will never lose the human touch, we live and work in a world where digital tools give us an opportunity to not just reduce our expenses, but also reinvent the way we conduct our business”.
Much of this reinvention centres on giving back to society. “Doing general insurance business over the next number of years will be more complex due to the systemic nature and interconnectedness of key future drivers – it will present forward-thinking organisations with tremendous opportunities to add value to society by helping to close the risk protection gap in South Africa and the world,” says Gibbens.
The best advice for you as a personal lines consumer is to make sure you understand the terms and conditions you are agreeing on with your insurer when you make your purchase. At the very least you should make sure you know what assets are insured, how much these assets are insured for and what excesses and exclusions apply to your policy. You should also find out if your insurer expects you to put in place any preventative measures – such as burglar bars, car alarm or tracking device – as a condition of your cover. If you fail to do your homework when buying your insurance policy, you risk a nasty surprise at claims stage when your insurer pays out less than you expected – or, in the worst case, refuses your claim entirely.
A great way to get your insurance right is to seek advice from an insurance broker or financial adviser. “You should take a holistic view of your financial requirements and your need for insurance, investment, health, retirement and other financial products should never be considered in isolation – otherwise you end up buying too much of the wrong products and too little of the right ones,” says Olyott.
Peter Olyott, CEO of Indwe Broker Holdings has spent many hours contemplating the future of insurance. He observes that changes in consumer buying trends and technology-backed financial product innovation are two of many trends set to revolutionise the industry.
The potential for change can be illustrated by a single scenario born out of these two trends. Consider, for example, the impact on insurers and insurance brokers of the introduction of automated total or partial self-driving vehicles to coincide with the millennial’s preference not to own a motor vehicle. Under this scenario motor vehicle manufactures may simply charge consumers for the use of the vehicle and be forced to include a comprehensive insurance solution as part of the transaction. Now consider that half of South Africa’s insurance business is written under the motor insurance class.
“The future takes longer than one thinks and arrives faster than one believes,” concludes Olyott, before issuing the challenge to all financial services stakeholders to begin focusing on ‘new age’ future-proof product development.
INSURANCE AND THE ECONOMY
The performance of the short-term insurance industry is closely linked to the performance of the economy. South Africa is struggling to emerge from a low growth cycle with Reserve Bank estimates for GDP growth at a mere 1.5% this year, rising to 1.7% in 2019.
“Santam believes that more meaningful reforms are critical for reinvigorating economic growth and making it more inclusive going forward,” says Santam’s Edward Gibbens. He lists improving infrastructure, attracting private investment, raising productivity across the economy and promoting job creation as crucial for future success.
“The outlook for insurers over the next three years is fairly muted given that our sector is directly linked to the state of the economy,” says Peter Olyott at Indwe Risk. Local insurers and insurance brokers face numerous challenges including increasing competition, cost pressures due to compliance with regulation, and a raft of price shocks that have eaten into consumers’ disposable income.
Says Gibbens: “Economic growth, or the lack thereof, will continue to shape the future insurance context, with unequal, variable and volatile capital returns, particularly in emerging markets, driving the mobility and flow of global capital in search of yields.”