Unsung heroes reimagine risk and advice
The broker is an unsung hero in an often-underappreciated industry, serving tirelessly as the interface between South Africa’s insurers and the businesses and households that buy insurance cover. Kieren Vels, MD Inland at OLEA South Africa, used his presentation to Insure Talk 63 to offer a broker’s view on the future of domestic insurance.
The imagination multiplier
Vels singled out imagination as a key differentiator in a world where clients face a growing set of risks, and where the frequency and severity of such events are on the rise. “Without imagination, we cannot begin to think about the quantity and velocity of things that could happen, nor how we translate that into language that our clients can understand and act on,” he said. To understand this point, just think of how legacy fire and flood risks are being heightened by emerging issues around infrastructure maintenance, or how more recent cyber liability risks are evolving under artificial intelligence (AI).
Brokers can prove their worth by bringing an objective, independent view of the risks that their business or household clients face. “The client is buried in managing and running their business and does not always have the time, space or objective position from which to recognise and respond to risks that often seem obvious to an outsider,” Vels said. Armed with a fresh view of the risks and a thorough understanding of the short-term insurance product universe, brokers advise clients on how to transfer risks from their balance sheets to the insurance market.
Flexibility and responsiveness are important attributes in the fast-paced broking world. The presenter supported this view by referring to Alvin Toffler, author of Future Shock, who argued that education involved teaching people how to learn, unlearn and relearn. Toffler quoted psychologist Herbert Gerjuoy’s warning that tomorrow’s illiterate person would be the one who had not learned how to learn. The lesson for today’s broker is to “be nimble in your thinking” and sharpen your “ability to adjust to changing circumstances”.
Going beyond a transaction at a price
According to Vels, brokers must establish and maintain a human trust relationship with clients and insurers, but pay attention to how each stakeholder needs you to show up. “Your clients need to trust your position as a professional in order to [share a view of] the things that are most important in their business; without that information you are in a difficult position to fully advise your clients,” he said. The warning here was never to view insurance purely as ‘a transaction at a price’ and to rather focus on the sustainability of a client’s business.
Regulation can help or hinder objectivity in financial advice, but at least it sets clear boundaries within which to operate. Vels asked whether the raft of financial sector regulation implemented over the past two or three decades had achieved the objective of ensuring a safe environment for customers. He suggested it was “difficult, if not impossible, to regulate the basic requirements of the industry ... described in FAIS in terms of fit and proper, honesty and integrity”. This probably explains the shift to principles-based regulation underpinned by Treating Customers Fairly (TCF).
The COFI Bill behemoth
Much of South Africa’s financial sector regulation followed from the United Kingdom. Readers of FAnews should be familiar with the twin peaks framework, which gave rise to the Financial Sector Conduct Authority and Prudential Authority, and the ensuing conduct push under the Retail Distribution Review and, more recently, the Conduct of Financial Institutions (COFI) Bill. “The COFI Bill is a behemoth piece of legislation that is going to change things significantly; we need to get our heads around the impact that it is going to have,” Vels said.
The conversation then turned to the future of intermediation and insurance in South Africa and beyond its borders, into Africa. Vels said there was a lot of opportunity for short-term insurance in our neighbouring economies thanks to historically low insurance penetration rates. These opportunities must be assessed against the risk environments you will encounter, keeping in mind there are wide divergences in risk maturity, the development of insurance industries and regulation across Africa’s 54 countries. Botswana and Namibia were singled out as well-developed, but many other countries have a reputation for instability and difficulties in repatriating profits.
The presenter then noted a growing interest in the captive insurance structure despite the prevailing soft market conditions. A soft market is a period during which insurance capacity is plentiful and policyholders can secure broader cover on more favourable pricing and terms. It is good for clients from an affordability and coverage view, but tough for commission-dependent brokers. “There are many reasons why captives are growing, and some might even argue that the COFI Bill is hastening insureds in forming new captives,” Vels said.
Popular locations for the establishment of offshore captives, usually facilitated by local insurers, include Bermuda, Guernsey, Isle of Man, Mauritius and, more recently, countries in the Asia-Pacific region. “Captives are a growing piece of risk mitigation that large corporates either have been or should be using in order to contain their total cost of risk in a sustainable and efficient way,” Vels said.
How should brokers respond?
The soft market creates unexpected challenges for brokers, notably the risk of losing business if you do not leverage reduced rates as a client retention tool. “This is a good opportunity for brokers to assist clients in buying additional covers or restructuring how existing covers are made or placed; you can broaden the scope of cover and reduce deductibles,” Vels said. The consensus view is that the soft market conditions will remain for as long as insurers and reinsurers trade profitably. Domestically, both Old Mutual Insure and Santam posted higher-than-trend underwriting margins in their latest financial years.
There is, however, a far bigger disruptor on the horizon than captives or market cycles. At the current rates of adoption and development, the experts predict that a combination of AI and humanoid robots will be able to perform the functions of most roles within the next 10 to 15 years. Brokers are not alone in trying to figure out the way forward under this science fiction reality. Vels suggested a somewhat philosophical approach involving an interrogation of purpose. Your purpose, he said, will guide all of your subsequent decisions.
Responses for a great future
Brokers cannot spend too much time imagining this future because there is a growing set of risks that need to be addressed today. Political risks present challenges to both insureds and insurers, as do excess market capacity, regulatory overreach and skills gaps. The latter can be tackled through a combination of internships, mentorships and insurance career planning. As brokers, we must figure out “how to shape our response to these emerging risks to ensure a great future,” Vels concluded.
Writer’s thoughts:
Common sense tends to fly out the window when weighed against the potential impact of AI and humanoid robotics on insurance disciplines such as broking and underwriting. Are you concerned about this looming science-fiction reality, or will human empathy, judgement and trust prevail? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
