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Cost containment the driver behind MUAs Telesure move

14 October 2013 Jonathan Faurie
Jonathan Faurie - FAnews Journalist

Jonathan Faurie - FAnews Journalist

Cutting costs has always been a major challenge, which companies in any industry around the world has to manage. This is particularly true in the insurance industry where customers are easily swayed by price as they are looking to get the best deal on what is still largely considered a grudge purchase.

The cost cutting challenge has been compounded since the onset of the global financial crisis and the recovery from it. Trying to get savings back to customers through improved business processes is a major challenge in the industry, as is companies who are looking to expand their distribution networks. This is the major motivating factor behind the announcement from underwriting specialists MUA that they will be parting with Compass to join the Telesure group.

Refining business processes

While this move comes as somewhat of a surprise to the industry, it came off the back of a well thought through process which involved a lot of investigations behind the advantages the move has to offer.

MUA MD Christelle Fourie tells FAnews that this decision was a year in the making. "MUA has been considering a new strategic partnership for the past year. We needed to get access to bulk buying power to manage our cost of repairs. Rather than go the route of rate increases, which we tried and quite frankly was traumatic, we decided to increase our capacity while decreasing costs. The majority of South African insurers were considered but there was a specific reason why we chose Telesure,” says Fourie.

Bulk buying power creates economies of scale which allows companies to better manage their costs of repairs. By doing this, MUA would be able to pass these savings onto its clients which gives them a sense that they are more than just a number with the company.

Another major motivating factor behind the move was Telesure's performance in the market. "We looked at a number of intermediated insurers and we found that Telesure's loss ratio was very low.”

Increasing human capital

Increasing the customer base or a distribution network is another way in which companies come to terms with increasing profitability to mitigate growing costs. Besides the bulk buying benefits which Telesure offers, this is the second biggest motivating factor behind MUA's move.

MUA will underwrite on behalf of Auto and General, one of Telesure's licenced insurance companies, from 1 January 2014.

"Telesure is one of the largest insurance groups in South Africa and owns and operates several of South Africa's leading insurance brands, including Auto & General. Telesure is owned by Budget Holdings Limited (BHL), which operates in the UK, South Africa, Australia, France, Turkey and the Netherlands. So we have an opportunity to increase our broker network, which is always a goal of any company in the industry,” says Fourie who adds that the move will also benefit Auto & General as they have access to a business area which they traditionally didn't have access to.

No grudges and business as usual

Traditionally, one of the features of a high profile move such as this is that the company which is absorbed into the larger group needs to adapt and take on the model of the holding company. However, Fourie assures us that this will not be the case and that it will be business as usual.

There will also be no change in ownership. Lireas will retain its shareholding as will Fourie who says that they are assessing their options to possibly incorporate other high profile shareholders in the future.

Fourie adds that the move came after a very hard decision to leave Compass, who has had a professional relationship with MUA since 2009. "MUA has enjoyed a successful partnership with Compass Insurance since 2009, and thanks Compass Insurance for their wonderful support during that time,” says Fourie.

There are also no hard feelings from Compass who has wished MUA well on their new journey.

According to Paul Carragher, MD of Compass Insurance, Compass and MUA have enjoyed a successful business partnership over the years. He says the highly competitive personal lines market, together with its ongoing technological developments, made Compass and MUA decide that MUA would be better suited to partner with a specialist personal lines insurer in the South African market.

"Telesure offers a highly sophisticated personal lines platform that benefits the MUA business model and its clients. The MUA move enables Compass to focus more fully on growing its business by expanding and exploring further opportunities in other niche specialist areas,” says Carragher.

Editor's Thoughts:
What benefits does the MUA move offer brokers? By being able to potentially offer savings back to customers, brokers will have the opportunity to grow their businesses. They will also have the opportunity to add technological innovation and high profile backing to their sales pitch. Looks like the move will not only benefit MUA. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by Maureen, 11 Nov 2013
Telesure maintains good results partly by refusing to pay any 'grey area' claims at all - wonder how this will help brokers, not to mention their clients?
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Added by Ayanda, 14 Oct 2013
Wonder if this is not more about "income increasing" than "cost cutting"?
Just asking!
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Added by Ayanda, 14 Oct 2013
I'd guess that everyone knows the truth and that Christelle's "cost cutting" may not be quite as important as "income increasing"!
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