Taking the fight to the direct insurers
The debate over the direct versus broker-based short-term insurance model has raged in South Africa for a number of years. In the Financial Mail’s Top Companies 2009 Stephen Cranston leads with the comment: “in short, going direct is gaining market share over broker-based shops.” And he’s spot on.
He concluded that while South Africa’s broker-focussed short-term insurers (including Santam, Mutual & Federal and Zurich) controlled approximately 50% of the motor and personal lines market, the country’s leading direct insurers were gaining market share hand over fist. Companies like OUTsurance (launched in February 1998) and Dial Direct (operating in South Africa since 2003) today account for an increasing slice of these categories. This threat has forced the large broker-based businesses to seek shelter in the more complicated corporate lines and commercial insurance niches. But over time the direct players will make inroads in these spheres too, though their current focus remains on the small and emerging business.
Blanket ‘tarring’ of short-term insurance brokers
The success of the direct insurance business hasn’t escaped the broker-based giants. Santam owns 25% of direct insurer MiWay. The company was launched in February 2008 and is jointly owned by Santam, Sanlam (55%) and PSG (20%). And Mutual & Federal incurred a rather hefty charge when it shelved plans to launch a competing direct insurance brand in partnership with Old Mutual. Who will win the battle for the short-term insurance consumer’s monthly premium?
It seems the direct insurers are better at winning over the man in the street. Consumers love OUTsurance’s OUTBonus and Dial Direct’s ‘Bucks Back Bonus’ which pay back a portion of their premiums (sometimes with conditions attached) at some future date. But the real market-share damage was done by prolonged (and often aggressive) advertising campaigns that cast palls over the integrity of the short-term insurance broking community as a whole. When Dial Direct entered the market they raised the ire of insurance intermediaries with their extensive ‘cut out the middle-man’ campaign. They claim to this day that their premiums are lower because they don’t have to pay commissions to an insurance broker.
This year OUTsurance hiked the ‘short-term insurance broker bashing bar’ a couple of notches. During July they aired a series of television and radio adverts in which the insurance broker was portrayed in an extremely negative light. The broker is depicted as someone who knowingly misleads his client by over-insuring, neglecting to mention waiting periods, or failing to inform of applicable excesses. The adverts typically feature three suited gentlemen (representing the stereotypical insurance broker) who appear out of nowhere to break the bad news to an insurance client who is trying to make a claim or purchase cover. Most people in the short-term insurance industry identify the three brokers with the three major broker-based players in the domestic environment!
Plenty of miss-direction
Another misleading tactic employed by the direct players comes in the form of the so-called insurance aggregator (hippo.co.za). The website offers users the opportunity to secure eight distinct insurance quotes, when in reality most of the ‘competing’ quotes come from member companies in Douw Steyn’s Telesure business. The constant negative portrayal of insurance brokers (and broker-model businesses) has no doubt contributed to the uptake of direct insurance products in the domestic market. And although brokers are understandably unhappy with the abovementioned campaigns, there is very little that can be done about it.
By discrediting their competitors the direct insurers discredit the entire short-term insurance industry. The truth is, whatever the direct insurers may claim, advertising costs and commissions belong in the same category – acquisition costs! You only need to take a quick look at the underwriting margins achieved at direct insurer OUTsurance versus broker-based business Santam to know which company offers the overall better deal!
Advertising spend must accelerate
From April 2009 all short-term insurers will have to tread carefully when canvassing for new business. The Consumer Protection Bill will strictly regulate the access of direct marketers to personal data. Consumers will be protected in three ways:
· The consumer will have the right to decline any communication from a direct marketer, be it by way of post, email, telephone call, facsimile, SMS or any other method;
· The consumer will have the right to demand that the third party ceases any unwanted communications; and
· The consumer will be able to bock ongoing approaches where such approaches are unwanted.
This bill will make it more difficult for direct insurers to solicit sales and we can expect advertising budgets across the short-term sector to increase significantly through 2010 and beyond. If we view advertising expenditure as an acquisition cost, then this development will further dilute the benefit that direct insurers claim to enjoy by not paying commission.
Editor’s thoughts: Direct insurers have an important role to play in the financial services industry. But we believe they also have an obligation to uphold the standard and image of the sector they participate in. What are your views on the recent short-term insurance adverts run by OUTsurance? Add your comments below, or send them to gareth@fanews.co.za
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