Brokers: key players in emerging markets
Advisers play an important role in the South African insurance industry as there is a specific need for advice due to a low understanding about the financial services industry.
There is a lot of growth within the financial services sectors of emerging economies. This is particularly true in the insurance sector where increased spending power amongst the growing middle class is being directed towards products which offer financial protection.
One of the issues which was covered in the recent KPMG Insurance Survey was the comparison of distribution trends between BRIC countries (Brazil, Russia, India and China) and South Africa.
Consolidation a feature in Brazil
Erik Bleekrode from KPMG Brazil, points out that two main challenges exist in the market. “Advice is being given either through bancassurance branches or through brokers. The broker market is still very fragmented with almost 70 000 independent brokers. However, this is also rapidly changing.”
He points out that there is still some debate regarding the future of broker channels. Some forecast a future where there will be significant consolidation in the market, which is a trend that is already happening in the market. There are others that suggest that individuals are better at targeting the growing middle class by being independent.
“Disintermediation is going to impact the market as well, but this will be a long-term process that will not be pushed by the local market players,” says Bleekrode.
Russian bancassurance profitability
“Insurance distribution in Russia is still largely dominated by bancassurance and a well-entrenched and powerful agent network,” reports Adrian Quinton from KPMG Russia. “Many banks have established or purchased captive insurance businesses and we have witnessed a large growth in bancassurance in the last three years which has proven a profitable segment for both banks and insurers.”
With high internet penetration rates and a growing middle class, Quinton reports that KPMG believes the internet channels will start to take a larger share of the market in the near future. “There are also indicators that the Russian market may see the emergence of aggregators as a channel within the next five years,” says Quinton.
India’s move towards direct
The Indian insurance industry has traditionally been dominated by individual agents who tended to be tied to one insurer and work on a commission based model. However Shashwat Sharma, from KPMG India, points out that over the past decade, bancassurance has also become a prominent distribution channel, particularly for life products.
“While in the near future these two channels are expected to retain the lion’s share of the market, online distribution is expected to grow, particularly for the distribution of motor, health and term life insurance products over the next decade,” says Sharma.
China is enjoying the best of both worlds
As with all of the other emerging markets which we have looked at, it is evident that the predominant insurance distribution channels in China continue to be agencies and bancassurance, and it is unlikely that there will be a significant change in the near future.
“However, we are starting to see a greater traction and growth for direct distribution channels with a number of insurers seeing some success in putting their products onto retail sales platforms,” says Mark Bain from KPMG China.
He adds that while the sales numbers for direct channels may still be relatively small, particularly in comparison to agency and bancassurance, China will enjoy high growth rates through direct channels over the next few years.
Delivering customer excellence
As we can see, South Africa is not far off from other developing markets when it comes to distribution trends. There is a definite need for advice in all of these markets and gravitation towards adopting online distribution channels. Customer segmentation is important in these markets and brokers have a role to play in assisting insurers in designing products which would improve customer satisfaction.
“The South African insurance market is highly competitive. Products are quickly commoditised and innovations are quickly replicated. As a result, insurers are finding it difficult to differentiate their product and service offerings in a meaningful way in order to attract and retain customers. As more South African insurers expand into the rest of Africa, survival dictates that they attract the right customers, provide personalised solutions and continuously strive to satisfy customer needs for simplicity, transparency and convenience,” says Onie Okharedia, Senior Manager, Managing Consulting Financial Services at KPMG.
Customers are no longer just considering price and product features when deciding to leave or select an insurer. Customers are now focusing on the entire service offering insurers have on offer; from the quality of advice received through to the level of after-sales service they receive.
“Based on this, insurers should be shifting their focus from the historical price/product feature focus to a more inclusive focus on customers’ experience throughout the insurance value chain in order to attract and retain customers,” says Wayne Davies, Senior Consultant MC Strategy & Operations at KPMG.
Editor’s Thoughts:
When you look at fellow emerging economies, South Africa is facing the same trends and challenges as these markets. Advice plays an important role in these markets and one just hopes that the future regulatory environment will not negatively affect the role that the broker plays in the market. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
