We have a responsibility beyond profitability
2018 is an auspicious year for the South African financial services industry as there are several insurers that are celebrating milestone anniversaries.
While these business models have served these insurers well over the years (in some cases, centuries), the winds of change are blowing, and the industry is a lot more complex than it has ever been.
Changing narrative
Addressing a workshop on the role of the insurance sector in unlocking growth in South Africa and Sub-Saharan Africa, Themba Baloyi – Founder and Executive Director of Discovery Insure – said that when we look at the issues that we currently face, we need to reflect on insights gained over years of operating in the industry.
“There are companies in the South African financial services industry which have a long and rich history. However, these companies have been operating with a specific business model for a number of years. We need to establish whether these business models are still appropriate in the modern age,” said Baloyi.
Control the message
For many years, South Africa was the largest economy on the South African continent. Because of this, many countries on the continent turned to South Africa for guidance on economic growth.
This has changed as Nigeria slowly grew its economy into what is currently the largest economy in Africa. Despite this, many economists and researchers look towards South Africa as a point of reference when it comes to the financial services industry as ours is more advanced than Nigeria’s.
So how do we stack up against the rest of the world? Let’s take motor vehicle insurance, which should be one of the pillars of any insurance industry as is it’s a mass consumable product.
“Statistics show that only 4% of the motor vehicles on the UK roads are uninsured. If we look at India, which is fellow developing economy, this figure is 55%. The number of uninsured vehicles on South Africa’s roads (nearly 70% of vehicles on the road) is a lot higher than both India and the UK. Is this a reflection of the South African financial services industry and its growth prospects? It is not. However, we need to find a way to get ourselves on par with our international peers,” said Baloyi.
Penetration and contribution
Alongside mining, the financial services sector has played a major role in the growth of the South African economy over the years. If the industry’s growth stagnates, it will have dire consequences to the country’s gross domestic product growth.
“When one looks at the US economy, the financial services industry contributes 6% towards the country’s GDP. Insurance penetration in this market is very high. When one looks at Africa, insurance penetration is low and the financial services sector only contributes 2,8% towards the continent’s GDP. This is concerning,” said Baloyi.
South Africa is considered by many as the African country that has the greatest insurance penetration. Baloyi added that the insurance penetration in South Africa has a lot of potential to grow but needs to be done off the back of innovative products. Now, he questioned whether some of the products that are currently available in the industry are innovative enough.
Once again, the issue on the progress of compulsory third party insurance was raised. Delegates at the workshop pointed out that this would be an innovative product and questioned that if Zimbabwe can have compulsory third party insurance for tourists coming into the country, why can’t South Africa find a system that will make this type of insurance mandatory for its citizens.
More than about profits
This is important and is a growing mantra for the industry. While insurers do have a responsibility to shareholders to remain profitable, it cannot be done at the expense of economic growth or societal development.
There is an increasing drive in the financial serves industry towards Socially Responsible Investing. This is an investment strategy where the companies within a specific portfolio are specifically selected because of the role that they play in corporate social development.
“Society is increasingly expecting companies to play a significant role in the upliftment of communities. Doing this while maintaining profitability in a sustainable manner is important. We have a responsibility beyond the numbers, we have a responsibility to society. We need to embrace this,” said Baloyi.
The insurance industry is an industry that uplifts society through protection and has done so for many years. To say the industry has completely disregarded its role in social upliftment is grossly unfair as there are many client success stories in the industry. However, financial inclusion is a worry and is something that needs to be focused on in the future.
Editor’s Thoughts:
How will we be remembered in the future? What stories will be told about those who offer protection to clients? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
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