Getting to grips with insurance
Since Sunday 23 May 2010 we’ve been holed up at Sun City at The Insurance Conference, staged for the first time as a joint initiative between the Financial Intermediaries Association (FIA), Insurance Institute of South Africa (IISA) and South African Insurance Association (SAIA). The conference theme was “Rising to the Challenge” and we’re certain the 500 delegates in attendance will take this message back to their organisations in the weeks to come.
In the second to last conference presentation, Nic Kohler, Chief Executive at Hollard Insurance, took to the stage to share his views on the current state of, and trends in, the global and South African insurance industries. He focused on natural disasters, client behaviour and the critical areas in which South African insurers must invest in going forward.
The threat of natural disaster
The world has seen its share of disasters in recent times. This year we’ve already been rocked by three massive earthquakes. Haiti was laid to waste by a 7.0 magnitude quake on 12 January, leaving 230 000 dead. Just over a month later, on 27 February, an 8.8 magnitude quake tore through Chile. Approximately 279 people died as a result, and industry experts say this could lead to the largest non-US insurance claim in history. And on 8 March, a 5.9 magnitude quake resulted in 100 deaths in Turkey.
Kohler observed that the ‘ash plume’ disaster which shut down the bulk of European air travel was a significant insurance event too, but not likely to be as costly as the earthquake disasters already mentioned. Early estimates of damagers vary from £62.5m for UK-based travel insurance companies, to $1.5bn for the air travel industry as a whole. Incidentally, British Airways recently announced a record loss of $613m for the year to 31 March 2010. Earthquakes, floods, volcanic eruptions and other natural disasters have increased local insurers’ and re-insurers’ awareness of risk, and underline the importance of correct risk assessment at underwriting stage. We cannot write business without considering all possibilities!
The insurance industry has a number of manmade disasters to contend with too. Global regulatory intervention is on the increase in the wake of the financial crisis, as economies try to harmonise capital requirements among banks and insurers. Insurers are paying for the sins of Western banking giants and the cost of regulatory compliance is stifling innovation. Other threats and opportunities stem from ageing populations and diminishing traditional sales opportunities. Insurers will have to think out of the box by developing products for older customers and moving to the developing market.
Insuring in India and China
“South African insurers are particularly well-equipped to compete in developing markets,” says Kohler, “because they know and understand the flexibility and adaptation required to transact in such regions.” Metropolitans ongoing thrust into Africa, Sanlam’s recent foray into India and Discovery’s joint venture in the Chinese health insurance markets are examples of South Africa’s ability in this field. Clearly future insurance opportunities concentrate in countries with younger (and growing) populations! That means Africa, Asia and South America will lead the insurance environment going forward.
Know your consumer
Domestic insurers have to understand the shifts in buying behaviour. Kohler mentions a number of emerging trends in the insurance consumer space. Consumers are younger, but still focus on risk management, choosing safer asset classes and building up nest eggs to protect against the unpleasant possibility of retrenchment. These consumers are connected (Internet) and knowledgeable. And the range of information available to them makes them price sensitive and value conscious.
The so-called Generation Y represents the largest buying block in the history of the world, notes Kohler. They are confident, impatient and entrepreneurial and often mistrustful of financial products. “We need to rethink the way we are approaching these customers!” says Kohler, before salvaging some hope for insurance intermediaries. Today’s consumer, hi-tech or not, is still high touch. They want someone around to explain the ins and outs of the financial service or product before the sign up. Customers want high quality product and service and the insurers’ job is to make sure the customer understands the product, is educated and finds appropriate solutions for his emerging market needs. “There’s an opportunity for intermediaries to position themselves as trusted business advisers,” he says.
The future
Local insurers have enjoyed a good decade. Since 2000 the short-term gross written premium has increased 13% per annum compounded. Over the same period gross written premium in the life space has grown 6% per annum. And although short-term insurers are struggling with their motor books, underwriting profits have been strongly in the black since 2003. Insurers must invest for a successful future. These investments include skills development, sustainability (building sustainable business models, mitigating effects of climate change, addressing losses in motor books, dealing with churn in life books, etc), financial inclusion, risk management, transformation, building trust and industry wide collaboration.
Editor’s thoughts: Skills development remains one of the major challenges to all professional services industries in South Africa. Do you have any ideas on how to drive skills development in South Africa? Add your comment below, or send it to [email protected]
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