Peering Across our Borders

One only has to look at the ripple effect of the financial crisis on companies, banks and insurers worldwide to recognize that we live and work in a global market place. Within the insurance industry, never before have we felt so interconnected and so affected by the global economy as we do today.

As part of RGA Reinsurance Company of South Africa Limited’s technical seminar series, consideration was given to what is happening around the globe, with the idea of prompting the audience to consider what the ramifications for South Africa may be.

Life Insurance Markets

If one takes a look at life insurance markets across the globe, it is clear that, although there has been an increase in global connectivity, this has not reduced the heterogeneity that exists within product lines and distribution channels. The drivers of insurance markets, which help to explain the variations we see between countries, include:

· Income levels – studies have shown strong correlations between per capita gross national income and annual insurance premiums (as disposable incomes increase, the demand for life insurance cover increases)

· The regulatory environment and State provision of benefits – in countries where the state provides health, death and/or disability benefits there is a reduced awareness and hence a lower demand from citizens for innovative insurance products

· Variations in demography between countries – aging populations have an increased need for disability products and products that aim to mitigate longevity risk

· Market maturity

· Cultural variations and attitudes to risk

· Levels of education

Since life insurance has been evolving for centuries, existing products marketed today across the globe cover most insurable perils. Therefore, product development in today’s market is largely focused on adding differentiating, yet value-adding features, rather than on re-inventing the wheel. An example of a product development theme that is making a global appearance is commoditization, where what we see is the standardisation of benefits so that product features and premium rates are easily comparable. Effective commoditization requires efficiency of operations, including a simplified underwriting process, to ensure competitive premiums.

Product Innovation has not only been centred around the actual product but rather on the combination of product and the distribution channel used for that product. Technology has increasingly transformed business practices and is a key enabler within insurance markets. Technological advancements are continuously making product offerings more marketable. One only needs to take a look at how different the insurance landscape appears today than it did twenty years ago, when the broker distribution network was all insurers had available to market their wares, to see how technology has had a global impact on distribution. Now one can compare prices and buy life cover via Internet portals in the UK at the click of a button. In India and South Africa, attempts have been made to harness the power of cellular phone technology by selling insurance cover via text messages. Telemarketing and television home shopping distribution have been around for slightly longer, but some interesting international developments are taking place in those areas as well.

Changing medical trends also play a role in the product design process, with aging populations and increasing life expectancy requiring a focus on morbidity and health as opposed to only mortality. A major risk threatening this ever-increasing life expectancy trend however is the growing epidemic of obesity, with some studies predicting a doubling worldwide of the already increased obesity prevalence over the next 30 years.

South Africa

According to a recent study commissioned by True South Actuaries and Consultants on behalf of the Life Offices Association of South Africa, South Africa potentially has a life insurance cover gap of between R5 trillion and R10 trillion within the working population. There is enormous potential for growth within our local market. For actuaries designing products to meet the needs of a growing and diverse target market, it is essential to understand the differences between insurance markets worldwide, and what drives insurance successes in those markets, to ensure the best can be brought to South Africa.