The importance of insurance intermediaries

The 2007 Insurance Institute of South Africa (IISA) conference was held at Sun City from 4 to 7 March this year. Held at Sun City, north of Johannesburg, the event was well attended by representatives from the insurance and insurance intermediary community.

Major regulatory and industry bodies were also represented, with delegates from the Chartered Insurance Institute (CII), Financial Services Board (FSB), Insurance Brokers Council (IBC), Insurance Sector Education and Training Authority (INSETA), South African Special Risks Association (SASRIA), South African Insurance Association (SAIA) and of course the IISA.

The conference was aptly titled "Winning ways - insuring our future through competence and professionalism."

FAnews attended and reports back on Anton van der Linde's (Vice President: IBC) presentation on the importance of intermediaries in the insurance distribution channel.

Speaking for the insurance broker

Starting with a summary of the key insurance categories (short-term, life, medical and investment), van der Linde quickly made the point that regulatory authorities should be careful of lumping all industry players in the same basket. What works for one industry will definitely not work for others, without some form of amendment or modification.

Van der Linde proceeded to take a closer look at the short-term insurance industry, comparing the broker distribution model with that of direct insurance.

Regulation in the industry has placed an increasing burden on the insurance broker to ensure consumer 'peace of mind'. The same cannot be said for the direct insurance distribution model. In this model, major decisions rest with the insurer and consumer 'peace of mind' is significantly reduced.

To illustrate the increasing pressures on the intermediary, van der Linde sited the increasing cost of acquiring and servicing each insurance policy. In 2000, an average insurance broker would take between 8 and 12 months to break even on acquisition costs. This period rose to between 16 and 18 months in 2006.

Similarly, client contacts increased from one every 12 to 15 months in 2000, to one every 6 to 8 months in 2006.

Direct insurers are absorbing industry growth

In 2004, direct insurers accounted for some 37% of short-term insurance business. Direct insurers are expected to continue to grow their share of business to as much as 52% by 2010.

Despite the increase in the proportion of business handled by direct insurers, most intermediaries felt there business was as strong as or better than before. These observations begged the question:

Have insurance intermediaries been lulled into a false sense of security about the growth in their businesses, when in actual fact the majority of industry and economic growth is finding its way into the hands of the direct insurers?

Industry should meet challenges head on

Van der Linde ended his talk with suggestions on how the intermediary should tackle the specific challenges facing them in the coming year. In his view, the focus should be on strategic issues, education and cooperation - and the goal to protect the profession.

Strategic issues included protection and development of small and emerging insurance business, better structure in dealing with regulatory bodies and solutions to the professional indemnity problem.

From an education perspective, the focus should be on giving structure and credibility to industry training without neglecting the important area of consumer education.

And finally, van der Linde encouraged greater cooperation by appealing to intermediaries to interact with all players in the insurance industry.

Editor's thoughts:
There are a number of industry bodies at work in the insurance sector at present. The IBC is one, as is the IISA. As an insurer or intermediary, what role do you think these bodies should play? Send your views to gareth@fanews.co.za .