A look at insurance trends through 2010
Insurance companies ply their trade in an ever-changing business environment. The dominant trends impacting short-term insurers and life companies were documented in PriceWaterhouseCoopers’ 2008 insurance report: Emerging from the storm, the day after tomorrow for insurance. As we enter 2010 we thought it appropriate to examine some of the trends singled out by the report, and test them for continued relevance.
The report identified two trend categories. On the one hand we have long term trends such as globalisation, demographics, longevity, regulation, technology, climate change and global pandemics. Short term trends were largely influenced by global responses to the 2008/9 credit crisis and subsequent recession. As the world emerges from recession the insurance industry is faced with a lack of trust and transparency, excessive government intervention, the rising power of emerging economies and conducting business through an economic slowdown.
Government’s disappearing trick
The long term trends identified by PwC are still relevant today. Globalisation remains a major driver of insurance businesses. Discovery Limited, a local diversified financial services business, is making inroads in the UK and China, Sanlam is pushing aggressively into the Indian market, and Old Mutual boasts an impressive global footprint too. These companies are leveraging demographics and making sure they position their businesses as close as possible to growth hubs in the emerging market. There’s an understanding you have to position in China and India to be a major player in global terms in the future.
Product innovation is another critical long term trend. New and innovative products separate a life or short-term insurer from its peers. Discovery’s effort to weave wellness (Vitality) into its life, health and investment businesses has been well received internationally. The domestic short-term industry, though largely in the direct space, is also playing the innovation game. In recent years a number of ‘cash back’ short-term covers have evolved, not to mention three-year fixed premium options.
Government’s disappearing trick
Government is a wildcard in the domestic insurance industry. After winning consumer battles in the life and financial services industries it seems the state has run out of steam. “There has never been a crystal clear delineation between the private and public sector in insurance,” writes PwC. They expect further blurring of the lines as government forces social outcomes on companies in the sector.
But South African insurance companies – both life and short-term – have had to deal with inconsistent messages. In recent years government has stirred up the financial services landscape with plans for a comprehensive National Social Security System (NSSS) and more recently a demand for equal access to healthcare services for all, enabled through National Health Insurance (NHI). Despite sending shockwaves through the industry, neither of these proposals has seen the light of day, nor are they likely to as National Treasury struggles to reduce the country’s burgeoning budget deficit. Regulation will play a part in shaping the industry going forward, but not nearly as quickly as industry stakeholders initially feared.
Global pandemic or profit generator
Spare a thought for those actuaries trying to cost health insurance. Viruses like swine flu (H1N1) and various strains of avian flu were positioned as industry breakers. A global pandemic of the magnitude touted by the medical professionals would prove life threatening to life insurers and medical schemes too. Apart from causing mass hysteria these viruses have thus far resulted in limited loss to life. Experts are now questioning whether the World Health Organisation (WHO) gave in to pharmaceutical company pressure to downgrade its definition of pandemic. The UK-based Daily Mail online alleges the “decision was driven by pharmaceutical companies desperate to recoup the billions of pounds they had invested in researching and developing pandemic vaccines after the bird flu scares in 2006 and 2007.”
The WHO said H1N1 would claim 65 000 lives, but the pandemic caused less than 250 deaths in the UK and only 14 000 worldwide. Wolfgang Wodarg, former head of health at the Council of Europe, told a hearing into the debacle: “It was stated in panic-stricken terms that this was a flu that could threaten humanity and a great number of humans could fall ill.” He said the WHO decision to downgrade its pandemic definition allowed pharmaceutical companies to cash in! The irony is conditions (such as hypertension and high cholesterol) and lifestyle choices (including lack of exercise, smoking and poor diet) result in thousands more deaths each year, not to mention mosquito borne diseases like malaria and Dengue fever.
Governments around the globe committed billions of dollars to vaccinate people against a mild illness, missing the opportunity to allocate funds to the real killers in society. The global pandemic trend impacting the insurance industry has been corrupted by the profit motive.
Editor’s thoughts: Insurance businesses have to evolve to stay at the top of their game. The big opportunities for South African companies include selling to un-serviced communities and taking their innovative product offerings offshore. Which of the trends mentioned in today’s newsletter have the most impact on your business? Add your comments below, or send them to [email protected]
