Second quarter survey reveals brokers remain confident in economy

A recent survey amongst insurance brokers in South Africa reveals that they are continuing to lose confidence in their prospects of attracting new business over the next 12 months, an indication that South African consumers are still struggling financially to keep their heads above water.

According to the CIB Broker Confidence Index Survey, which measures the confidence levels of insurance brokers on a number of issues, the results for the second quarter of 2010 showed that 75% of brokers are confident in their ability to attain new business over the next 12 months, down from 77% recorded in the first quarter of 2010 and 79% in the fourth quarter of 2009.

The survey also showed the confidence level amongst brokers over any improvement in business conditions for the local insurance industry over the next 12 months fell marginally to 66% in the second quarter of 2010 from 67% in the first quarter. Meanwhile, broker’s confidence in the outlook for the economy and business conditions over the next twelve months remained unchanged at 65%.

According to Jonjon Smit, Sales Director of CIB Insurance Solutions, insurance brokers tend to acquire greater numbers of new customers at the same time when consumers are purchasing items and therefore looking to insure them. “The drop in confidence levels in prospects for the industry and new business suggests that brokers are not expecting a significant pickup in consumer spending, despite the perception that economic conditions are improving.

While brokers may be less confident of attaining new business, the survey revealed that they are increasingly confident of maintaining their current customer book with 77% expressing confidence in their ability to retain existing clients, up from 74% in the first quarter.

“Most brokers understand that in the current economic conditions, it is far easier to hang on to existing customers than to acquire new business,” says Smit. “This is good news for consumers, as it should result in increased service from brokers.”

According to those surveyed, the biggest challenge facing brokers over the next twelve months remains direct insurers with 37.4% citing this as the biggest threat to their business, up from 34.9% in the previous quarter.

The survey also revealed that brokers are increasingly viewing new legislation as a major issue, says Smit. In the second quarter of 2010, 30.2% said compliance with new legislation and regulations will be the biggest challenge over the next year, up from 26.5% in the first quarter. This has risen 6.4% over the preceding two quarters.

“There has been tremendous regulatory pressure placed on brokers already with a spate of new regulations such as FAIS and the forthcoming Consumer Protection Act and Treating Customers Fairly guidelines. In addition, new regulatory exams for Financial Services Providers (FSPs) that are currently being piloted suggest that the challenge for brokers of complying with new legislation is not going away anytime soon.”

When asked where they think the biggest opportunities for short term brokers lie during the next 12 months, 36% of brokers cited improved systems, with the economy a close second at 32%.

“Despite some caution in their confidence levels this quarter, nearly a third of brokers still expect to see opportunities in the short term space in the economy over the next year, which is a positive sign for the industry,” says Smit.