Where are we heading come 2015?

Have we weathered the perfect storm?

By all accounts, the past two years have been challenging for the insurance industry. It has been characterised by slow growth in new business, high costs and a price war between insurers who are looking to gain new business.

Have these challenges been as pertinent in 2014 as they were in 2013? What can we look forward to going forward into 2015? FAnews caught up with a few industry experts to find out what 2015 may bring.

The effect of regulation

According to Gareth Beaver, Chief Executive Officer of Centriq Insurance, the implementation and impact of binder regulations, and most specifically the increased costs which insurers agreed to in order to secure business within their distribution channels, hugely impacted the short-term industry this year. So did the continued underlying cost pressure on motor claims due to the deteriorating rand-dollar exchange rate and escalating crime levels, amongst others.

This year insurers targeted the good risks, which resulted from the intelligent mining of big data, quite aggressively. This shows that insurers have come to realise that data itself is worthless if no insight or business is derived from it.

Obey the law

Bertus Visser, Chief Executive of Distribution at PSG Insure reports that during 2014, advice risk and ensuring that all components of compliance were adhered to remained a big challenge.

“This will continue in 2015. It is critical that proper advice processes are put in place and embedded throughout businesses, and that these can be clearly demonstrated if Regulators come knocking on your door. Having streamlined processes and automated documentation makes it easier for advisers to ensure they remain compliant. In the past year, we have seen the implementation of Binder Regulations, Treating Customers Fairly (TCF) and the Protection of Private Information Act (POPI). It is difficult to keep up if you do not have the time and resources,” says Visser.

He adds that an ageing adviser population is a further challenge, combined with a scarcity of skills. It is critical that all financial adviser businesses transform and introduce new blood, otherwise they will have the same limited skills pool, and increased costs. Advisers need to ensure that they have proper succession planning in place and clearly thought-through succession plans – not just pieces of paper nominating successors. There are many proven ways in which this can be achieved, and examples of successful successions do exist.

“I still believe that it is critical to have advisers that can demonstrate that they are independent and not tied to a single provider. This will ensure that advisers can offer their clients choice and make sure that they source the most appropriate products for the advice they offer,” says Visser.

Associating with the right brand

Having an association with a strong brand also gives clients peace of mind. Small independent financial advisers do not necessarily have the time or money to invest in information technology or to ensure that their business processes are optimised so that they have more time to spend with clients. Bigger brands can also invest more resources into compliance processes. For example, it is critical that advisers do not have too many product providers as this increases their advice risk. Proper due diligence processes also need to be followed with regard to POPI and TCF.

Another ongoing challenge for advisers is to be able to demonstrate their relevance and value-add to clients. This is a combination of doing a full needs’ analysis at the outset, regular face-to-face interaction, and regular communication. All of this is possible if there is a clear client segmentation process and business model, and the right Customer Relationship Management (CRM) system to support this strategy. Advisers should help their clients to keep down the cost of claims by ensuring that they align with the insurers’ procurement processes.

The customer is king

Since the introduction of TCF, the Financial Services Board (FSB) has signaled its intent that the customer will take a more central role in the industry. Frank Schutte, Managing Director of Retail Product and Marketing at Liberty, points out that many South African customers still believe insurance is confusing and tough to navigate; therein lies the opportunity.

“In order to grow and nurture a reciprocal relationship, we need to look at what our customers are demanding, or at the very least, understand their expectations. The growth lies in the upcoming emerging consumer that is looking for financial inclusion and demanding appropriate products that fit their changing lifestyles. Companies need to be driven by the fact that they constantly face up to the challenge of providing customers with new style products, coupled with education on the basics of insurance, their choices, and in the process, earning their loyalty,” says Schutte.

He adds that rapid advances in technology have upped the ante for all insurers, particularly in relation to today’s empowered consumers who use the internet as a tool to advise them on their purchases. Because of this, the industry continually has to develop new and innovative solutions to remain relevant to customers’ changing needs.

Looking ahead

Commenting on the year ahead, Beaver says he expects the release of the Retail Distribution Review (RDR) paper and the ramifications thereof to have a significant impact on each and every role player. This will result in the repositioning of some brokers, insurers and UMAs yet again.

Consolidation will remain a reality within the various market segments. This will cause role players to question their competitiveness as well as their current and future positioning in the market place. As a result, we will see some individuals, and entities, being forced to give up the journey they have been on to date.

“In addition to the above, we can expect better underwriting margins and more international competition to be the main risk drivers for 2015, including volatile weather events, high crime levels, continued power and water crises, and the contagion effect of the Ebola virus. The release of the final and much anticipated FSB paper on Cell-Captives and similar arrangements will see some major changes being made to certain arrangements. However, this must be viewed in a positive light,” says Beaver.

He adds that continued growth in Alternative Risk Transfer and UMAs is also a top priority for many companies next year. “Overall, we can expect more insurers to make better underwriting margins as pricing pressure and corrective action implemented throughout 2014 gains traction.” continues Beaver.

Schutte feels that there is potential for 2015. He says, “although it is premature to say the tough times are behind us, there are many signs pointing to significant opportunities. There are hundreds of prospective customers, both from an organic view as well as potential clients, a growing middle class, maturing regulatory landscapes and a population that is increasing their financial literacy rates – all of which combined, creates vital new markets for the insurance sector.”

Visser concludes by saying that insurers should also regularly communicate to their clients on the possible risks they are exposed to by not adhering to policy conditions. The more streamlined the practice, the greater the alignment with all providers will be. This means that both the adviser and the client save time and costs.