Can SA keep up with the pay-as-you-can model?

Innovation means that anything in the new age of technological advancement is possible – even within the traditional insurance industry. The sector has seen a slow take up of new models and digital technology. It remains pretty traditional and herein lies part of the problem, and potentially the solution.

Not only do intermediaries provide advice, they are also responsible for the outcome of the advice. They are, therefore, extremely cautious of new models, particularly the ones that are not widely adopted by insurers or customers.

Insurance as and when needed

The pay as you can model means that cover received is proportionate to the premium available or paid. This means that customers make the decision to only purchase what they want, or what they can afford to cover at any given point in time. This certainly provides options for the customer and means that he or she can purchase additional insurance as and when needed.

This enhances access to insurance allowing more people to be covered. This also means that simple products can be tailored to meet the needs of groups or schemes on the basis of a set amount of cover for a set premium, with the flexibility to increase or decrease cover in line with affordability.

Furthermore, digital solutions will allow customers to change their insurance needs as they see fit.

Insurance increases relative to value

This model is, of course, highly attractive to customers as we are in a time when buying insurance is not seen as a cheap commodity but as a financial protection necessity. The price of household goods, properties and motor vehicles are increasing, hence, the cost of insurance increases relative to value and the cover selected.

As attractive as this model may seem, it brings with it a new set of circumstances in terms of transparency, understanding and education. The model would have to take into account a plethora of consumer protection legislation and we would need to assess the exact impact it would have on the market.

In the know

Therefore the question to ask is what would this mean for the intermediary? Not only would the intermediary need to be aware of the type of products and options available, he or she would need to determine what would be most suited to the customer.

The intermediary would also have to provide the necessary advice, in line with a needs analysis that will still allow the customer the freedom to make an informed decision; knowing that full cover will not be available in the event of loss or damage.

At the very least, a complete financial disaster could be avoided. However, it becomes problematic when a customer does not understand that he or she is not fully covered and could run into a potentially serious financial situation when it comes to lodging a claim.

Weighing the pros and cons

When weighing up the pros and cons, would this insurance model actually work and would intermediaries sell it even if it meant providing partial rather than full cover?

Taking the pros and cons into consideration and understanding that all industries will have to innovate to address customer demand and offer new ways of doing business; one would therefore have to ask the question “why not?”

Pay TV channels allow people to buy up or down and pre-paid options are readily available, allowing for affordability to serve as a key decision maker. Various industries are evolving to offer solutions based on affordability and the insurance industry is no different. Ultimately, some cover is better than no cover.