A shiny new umbrella
On 12 May 2011 Santam invited a group of journalists to a presentation on the group’s brand evolution. Within minutes it became clear South Africa’s leading short-term insurer had changed more than its logo. Under the slogan “Insurance, Good and Proper”, Santam called upon all stakeholders in the shot-term industry to up their game. “It’s up to us to challenge the industry in an attempt to tackle some of the issues that concern all of us,” said Santam chief executive, Ian Kirk. He came out strongly in support of the traditional intermediated model as a method to address the industry’s current devalued image. The goal – to be an insurer that matches its promise at new business stage with its payout at claims stage!
“There’s been a proliferation of new entrants to the market in recent years, primarily in the direct space,” said Kirk. He wasn’t out to ‘bash’ the direct insurers – acknowledging that most large players in the financial services space were already active in that area. But he was critical of certain short-term product offerings and the advice offered consumers at sales stage… He used a recent competitor product to illustrate his point. The product – which masquerades as ‘insurance for your vehicle’ – turns out to be little more than a breakdown and tow-in policy. In the event the vehicle was in an accident the cost of getting it to the panel beater would be covered, but the repair ended up being for the consumers’ account.
The product MUST live up to its promise...
In the above example the product might have lived up to its promise – but the ‘promise’ was not clearly communicated to the target audience! “At product design stage there should be no possibility of the product being miss-sold,” said Kirk. This is of particular relevance to people buying insurance for the first time. The first time buyer is uneducated about insurance and ends up making their decision based on the price of the solution rather than its appropriateness. The irony is those consumers who most need the ‘hand holding’ and advice offered by an insurance intermediary end up making their first insurance purchase via the direct marketing channel.
“This means, in our view, the direct insurer should take more responsibility around the appropriateness of the product sold – which makes their task a lot more difficult,” opines Kirk. Consumers tend to forget how much assistance the intermediary offers at claims stage. If you purchase direct insurance then it’s you against the company at claims stage… In contrast a broker client benefits from emotional support, administrative assistance and the broker’s relationship with the insurer at this critical time.
As regulation changes the direct insurers could find their cost benefits eroded slightly. The reason is insurers – and direct insurers too – will have to make ‘fairness’ a central part of their ongoing operating activities. “The proposed Treating Customers Fairly (TCF) legislation challenges us to put the customer central in our thinking,” said Kirk. It requires insurers to consider their customers at every stage of product design and distribution. Direct insurers will certainly have to look at improving the advice offered via their telephone and Internet sales channels.
Going direct isn’t necessarily cheaper
Kirk spent some time dispelling the ‘direct is cheaper’ myth. “There’s a perception that if you buy direct your insurance will be cheaper – and if you go the intermediated route it’s not,” he said. “That’s not the case.” When all is said and done the primary driver of an insurance premium (the cost) is risk – and one person’s risk is not the same as another.
Broker commissions account for around 15% of the monthly premium – an expense that would typically be matched by the advertising expenditure of the direct insurers. The rest of the insurer costs are based on the scale of the respective business – the bigger you are the less the cost per policyholder. “We have to offer value to the client,” observes Kirk. “And we do so, because after our margin of between 4% and 6% we have in the region of 70% to pay out for claims! Organisations with worse claim payout ratios need to investigate how much is being taken out of the premium each month!”
Conditions in the short-term insurance space have improved in recent years. Insurers are posting solid underwriting margins thanks to the strong rand (and its impact on motor vehicle parts) and a reduction in the frequency of motor vehicle accidents. This has allowed Santam to pass small premium reductions on to its motor clients this year. However, systemic risks remain. South Africa is a country where between 60% and 70% of the vehicles on our roads are uninsured. And short-term insurers are conducting business in a country where road and other infrastructure is failing fast!
New thinking in short-term insurance
Santam’s strap line “Insurance, Good and Proper” speaks to the insurer’s desire to change its attitude and approach. It is a call for management, employees and intermediaries to tackle the challenges in the industry and put the consumer first every step of the way. Kirk notes: “To live to this goal we have to offer reliable consistent service, good value for money, create working relationships with intermediaries and policyholders to reduce risk and work across the supply chain to create better efficiencies.”
“I am confident that the refreshed brand articulates our absolute commitment to integrity, to certainty, to our single-minded focus on short-term insurance; to excellence and to delivering insurance with stature.”
Editor’s thoughts: We found Santam’s brand evolution presentation refreshing… It felt as if the group was using its re-branding as a first step toward instilling the Treating Customers Fairly concept! Have you purchased ‘direct’ insurance – and do you believe the level of advice offered was up to scratch with today’s financial services regulation? Please add your comment below, or send it to gareth@fanews.co.za
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