Challenges facing the short-term insurance industry

Against the background of South Africa’s first recession in 17 years and the increasing socio-economic challenges the country faces such as the high levels of personal debt and security concerns, the local short-term insurance industry is facing a testing time.

The challenges faced by the industry should however be addressed through a collaborative approach with consumers, government and policymakers so as to ensure the long term sustainability and growth of the sector.

This was the message from Ian Kirk, Chief Executive of SA’s leading short-term insurance company, Santam. Kirk delivered the key note address at The Insurance Institute of South Africa’s (IISA) annual conference held at Sun City in the Pilansberg over the past weekend. (28-29 June 2009)

Kirk emphasised that the industry is operating in very difficult underwriting conditions and that a new way of thinking is required.

“Collaboration on risk management will be a key trend in the future. Not only are we as the industry facing a subdued growth outlook over the next two years, but we are facing considerable increases in claims, costs and frequency. The level of risk often correlates directly with the economic health of the country and this is where the industry should ensure that it engages with policy makers. Commercial and personal lines policyholders are under financial pressure and accordingly it is difficult for insurers to appropriate premium for the risk on the ground.

“For the insurance industry to that grow and flourish in the future, it is necessary to work with all stakeholders – government, the regulator, the wider community and its clients - to pro-actively manage risk on all levels,” he said.

Commenting on Santam specifically and how it tackled the task of collaboration, Kirk focused on the environment which is the ultimate risk management challenge. Kirk announced that Santam had joined ClimateWise, a global insurance industry initiative aimed at influencing debate and decision-making on climate change which the industry sees as a critical global challenge. “Trough ClimateWise, Santam will now have a voice at the UN climate change negotiations in Copenhagen in December 09,” Kirk said.

“Climate change cannot be ignored or avoided and there are limits as to how much of the climate risk can be transferred to the insurance industry. As a society we need to reduce and attempt to avoid catastrophes in the longer term. We at Santam are therefore serious about our journey. We believe every small act is important, as it all adds up and we are keen to learn from like-minded peers in the ClimateWise group. We will be working with them and the rest of the industry players to address the risks, share the opportunities and update our clients on our concerns around climate change.”

“A few years ago the focus was only on managing the risk – it’s now on influencing the risk so as to proactively decrease it. To do this, we need to understand the problems our markets face, promote loss prevention on all levels, align our business terms with risk reducing behaviour and ultimately craft new insurance solutions.”

In conclusion Kirk added the following as general advice to the industry, “Cut costs, but not quality. Increase your staff productivity so as to restore consumer confidence and on an ongoing basis reassess the buying factors of your segmented customer base. As an industry we can, and should, influence and bring about significant change to ensure the long-term sustainability of our industry.”