Lessons from global insurance industry challenges
One of the international presenters at the Insurance Institute of South Africa (IISA) 2008 Annual Conference was Patrick Kenny, President of the International Insurance Society (IIS), New York. The IIS mission is to “facilitate the worldwide transfer of ideas and innovations … across national and international insurance markets.” Kenny based his observations on experiences from the North American insurance market along with feedback gathered at various international insurance seminars.
“I think the issues in North America are the same as those I hear about when I travel around the world,” said Kenny. The key difference is the stage of development of the industry in a particular country. China, for example, is marketing life insurance products which were popular more than a decade ago in major Western markets.
Technology, costs and market expectations drive change
Kenny noted that the insurance industry continually changes over time. Its product offerings have had to adapt to the needs of policyholders and society. An example of this evolution is the move from savings to investment products witnessed in the life insurance industry in the late 1990s. South African life insurers have had to expand the range of products they offer too. They’ve moved from being life insurance only to one-stop financial service shops offering a range of investment and asset management services. Kenny believes the focus in the US market is slowly moving back to savings products. In fact, “the number one issue affecting the life insurance industry in the US right now is what role the industry is going to play in the retirement market going forward.”
The insurance industry has also had to look at ways to tackle challenges in distribution. In particular, Kenny said that “distribution and distribution costs are an extremely critical issue in the life insurance industry!” A leading contributor to this expense is the cost incurred by insurance companies in recruiting, training and retaining staff. Kenny pointed out that statistics from the US indicate that if 100 life insurance agents were hired today, only 14 would remain in the industry in four year’s time. As a result of this poor employee persistence the average age of life insurance agents in the US is on the rise. Leading insurers have had to adapt or die. And that’s why Kenny observed: “I think we’re seeing a move away from the traditional distribution processes.”
Technology is also playing its part in redefining the non-life insurance distribution channel. The Internet has spawned numerous ‘direct’ insurers that sell personal lines (motor vehicle and household insurance) directly to the public. Younger people in the US don’t know of any other way to shop for this type of product. Direct insurance uptake in South Africa lags that in developed markets due to lower Internet density, poor communications performance and relatively higher costs. But we will eventually catch up. Technology is also one of the drivers for new products in the non-life industry. An example is the recent integration of satellite navigation and automobile insurance.
Human capital and regulation plague insurers around the globe
Human capital is a problem in almost every insurance market in the world. And it’s really bad in Asia. According to Kenny “there are no qualified non-life actuaries in the Indian insurance market and there are only 43 qualified life actuaries in the Chinese market, which is one of the fastest growing insurance markets in the world.” As these markets develop the demand on insurers to train and develop people will grow exponentially. And from experience we already know a skills backlog cannot be addressed in a short space of time.
Regulation is another dominant global issue. In North America insurers are struggling with the question: “What role does the government play?” But in South Africa, industry players already know the answer to this question. Government wants to be involved in the industry to the fullest possible extent. This includes an extensive revamp of commission structures in the long-term industry as well as the proposed introduction of new legislation to regulate the micro-insurance industry. Regulatory intervention is here to stay and the insurers, insurance intermediaries and consumers are more aware of this fact than ever before.
Looking to the future
Although South Africa has a way to go before its market is saturated, major domestic players can learn from some of the issues faced in the UK and US right now. These countries are starting to worry about where future growth will come from. They don’t know where they’ll find more motor vehicles; or lives to cover. Some insurance industry players have begun asking whether growth is necessary to continue successfully in the industry. Will they be able to survive without continued new business?
And finally, the challenge for insurers around the world remains to gain the trust of the general public. Kenny observed that in the wake of Hurricane Katrina 97% of insured individuals were happy with the service received from their insurers. Yet the media focussed on the 3% who had some form of complaint. This negative portrayal continues to undermine the global insurance industry.
Editor’s thoughts:
Although international insurance markets are at different stages of development they seem to face similar challenges. What do you think is the biggest challenge to the domestic insurance industry: distribution, regulation or human capital? Add your comments below, or send them to gareth@fanews.co.za
