Life sector grows despite tough economic conditions
Schalk Malan, Executive Director: Actuarial at BrightRock
Jacques Coetzer, General Manager of Sanlam Broker Distribution.
By all accounts, 2014 proved to be a challenging year for companies in the life and retirement sectors and it looks like this will be a continuing trend in 2015. However, there are opportunities for advisers to prove themselves indispensable to clients.
While the South African economy has not been in the dire straits other international economies have been in, the growth of the South African economy has been significantly lower than other economies.
The struggle is real
Peter Dempsey, Deputy Chief Executive Officer (CEO) of the Association for Savings and Investment South Africa (ASISA), pointed out that when there are threats of unemployment and low salary increases, the public go into survival mode. During this time, the public prioritises their needs and they start to see savings as impossible when they are trying to make ends meet.
“While the year was challenging for insurers, it was not catastrophic. Despite pedestrian activity, where there has been little to no new business coming into the sector, the life insurance sector still managed to see real growth and flows into the industry was above inflation,” said Dempsey.
Because of the slowing economy, and the threat of little new cash flow coming into businesses, Dempsey pointed out that insurers within the sector are well capitalised, which is good news for clients because it means that they will not lose money.
Schalk Malan, Executive Director: Actuarial at BrightRock, shared Dempsey’s sentiments about new business growth. He pointed out that Brightrock saw strong new business growth of an average of 15% month-on-month throughout the year and have also benefited from positive experience variance thanks to the better than anticipated investment performance.
Product development becomes key
Even though fundamentals such as low economic growth and high unemployment are proving to be challenging, companies need to find ways in which they can offer real value to customers.
Because of this, product development in the life and retirement sector has become key.
The pain of legislative reform
One of the main comments we receive from advisers is that they cannot believe how the insurance industry can be blamed, or saddled with some of the blame, for causing the global financial crisis. While these advisers do have a point, Dempsey pointed out that the actions taken by global authorities to prevent a further crisis have affected the industry. “We have seen a lot of regulatory change over the past two years, and this will continue for the next two years as the Financial Services Board (FSB) is trying to make the South African insurance industry competitive against global markets. This causes uncertainty in the industry, which is not good for growth,” said Dempsey.
Jacques Coetzer, General Manager of Sanlam Broker Distribution, pointed out that these worries can be avoided. "The solid and inclusive consultation process related to the Retail Distribution Review (RDR) regulation is a very reassuring sign.” Moreover, he said business and consumer confidence can be boosted by focusing on the positive results that are experienced in industries across the economy.
“This is not to deny the serious effect of increasing pressure on the disposable income of consumers. We are all justifiably concerned about the impact on the retail market of further expected interest rate hikes, the Rand’s depreciation against other currencies and the knock-on effects thereof, as well as rolling black-outs and the broader impact on our economy,” said Coetzer.
A challenging year ahead
While the FSB finalises its RDR plans, and continues the rollout of Treating Customers Fairly (TCF), dealing with regulation reform will be something that the industry has to live with in 2015.
Coetzer said this includes a realistic and balanced approach to participation in the evolution of RDR. “Implementation is unlikely to happen before 2016 and there will be significant engagement from the financial services industry in this regulation set. The inclusive process is definitely reassuring and we should embrace the opportunity to be a part of the establishment of a sustainable and fair business environment,” said Coetzer.
Still, the economic and socio-economic pressures and the resultant squeeze on the consumer’s pockets look set to continue. “There are no quick solutions to these challenges and we may well see their impact worsen in 2015. This is a reality we will have to deal with, but I believe an innovative approach to business and a solutions-driven mind-set can make the difference,” said Coetzer.
Therefore, from a business perspective, it is not going to be an easy year. The important thing, however, is to keep focusing on the bigger picture and to acknowledge and capitalise on opportunities.
Customer will be king
The FSB has pointed out that the reason for the majority of the regulatory reform is that there were some practices within the industry which were not fair to customers.
“With TCF, there is no longer a formal implementation date; instead it will be embedded in all other industry legislation. The FSB said it is gradually and incrementally introducing TCF into its supervisory framework. Companies are already expected to be focusing on TCF and to be embedding the six outcomes into their day-to-day operations,” said Malan.
Editor’s Thoughts:
In order to move beyond the mindset that South Africa does not have a savings culture, the role of the adviser becomes more important in the life of a client as he is able to give objective and educated advice on how to plan a savings programme that can suit the individual. Dempsey pointed out that if we can achieve this, we will be well on the way to complying with regulatory reform. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
