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Mythbusting the SA short-term insurance industry

25 May 2016 Ernest North, Oakhurst
Ernest North, Actuarial and Underwriting Director of Oakhurst.

Ernest North, Actuarial and Underwriting Director of Oakhurst.

Oakhurst Insurance Company Limited hosted a breakfast for its partners on Tuesday, 24 May 2016. KPMG’s Gerdus Dixon presented the findings of their Annual short-term insurance industry survey. Rick Claughton, Legal Director from Oakhurst Insurance presented the practical preparation to regulatory changes. He elaborated on how the new legislation may affect income, the way the insurance industry operates and the effect of these regulations on relationships.

Actuarial and Underwriting Director of Oakhurst, Ernest North, gave a fascinating presentation with the intriguing theme: Mythbusting the SA short-term insurance industry.

In his presentation North explored, amongst other statements, whether the South African short-term industry market has been performing better than our general economy over the past four to five years. Even though growth was noted in certain sectors such as commercial and corporate insurance, it was demonstrated that premium growth has not managed to exceed GDP. Specific challenges that were highlighted included that personal lines penetration has not increased over the period, and that the commercial and corporate markets remain soft.

North proceeded to explore the “myth” of whether the commercial motor and property market is changing rapidly with traditional players losing ground to direct insurance*. He illustrated how the traditional players within this market have shown market share growth year-on-year, whereas the direct writers have not made the drastic impact that many believe. He therefore declared another myth busted.

The next myth to be busted explored whether the exchange rate over the past four to five years hit the motor market hard. He showed how repair cost for certain vehicle types, especially where majority of parts are imported, increased more than for the average other vehicle types, confirming the strain this is putting on the local personal lines market.

The final myth under scrutiny was that Telematics data is not proving meaningful in observing practical risk-relevant driving behaviour. A simple question was posed to the audience: “How many times did you drive between 23:00 and 04:00 in the last month?” Data from a random actual on-risk client base was shared with the partners, showing that drivers younger than 30 tends to be out driving late at night an average of 9.44 times per month, whereas their older counterparts would only be driving after 23:00 an average of 6.43 times per month. This simple example, although the tip of the iceberg of the data that is available, clearly illustrated why insurers like Oakhurst are able to utilise Telematics data to partner with their clients to encourage safe driving. The myth therefore was declared busted.

“Although these specific myths are simple and diverse, there are numerous similar examples, and all of them point to the fact that the market as a whole is a difficult place at the moment. On the one hand the two traditional giants seem to be strengthening their position (apart from personal lines) through strong broker relationships, while simultaneously the smart use of technology to improve customer value propositions and standard business processes (especially claims), is giving selected niche players an opportunity to grow”, said North.

Quick Polls

QUESTION

Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

ANSWER

[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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