Another challenging year for the short-term insurance industry
Dawdling car and house sales, an increase in motor accidents, renewed focus on transformation and BEE and a slowing economy are just some of the challenges the South African short-term insurance industry will face in 2008.
According to Leon Vermaak, CEO of Auto & General Insurance, “The industry certainly has the innovative ability and professionalism to overcome these challenges, but greater cost efficiencies, sophisticated pricing and underwriting as well as skills development is required.”
Vermaak says that short-term insurers are not as profitable as in recent years. “Not only has there been an increase in motor vehicle accidents due to the increased number of cars on our roads, the deteriorating infrastructure, high traffic volumes and the large number of new and inexperienced drivers but the cost of insurance claims has increased because a large number of vehicles on our roads are imported and contain advanced and expensive computer systems and sensor monitoring equipment. The impact this has on the short-term insurance industry is that the parts available to repair these new, technologically advanced vehicles are more expensive which translates into much higher claims costs for the insurer and increased premium rates for the consumer.”
“In order to achieve client growth, many short-term insurers will use discounting to attract new business as a remedy but this only leads to a boom and bust cycle and is not a solution. To keep insurance affordable despite these factors, short-term insurers should place greater emphasis on the use of technology and streamline processes and procedures which will eliminate unnecessary duplication between the insurer and broker. To sustain profitability and achieve growth we need to rate accurately and attain greater cost efficiencies,” says Vermaak.
Vermaak says that 2008 will be seen as an unexciting time for insurance brokers. “Due to inflationary pressures, consumers will be tightening their belts in 2008 and there will be fewer entrants into the market. This will have a knock-on effect for insurance brokers. My advice to insurance brokers is that they deal with insurers whose business model allows brokers to do less administrative work so that they can spend their time getting closer to their customers, offering a flawless service. In addition, insurance brokers are advised to rebalance their portfolios to cover both commercial and personal lines insurance. This would make them less vulnerable in the personal lines arena where channel threats, specifically the aggregator, direct and affinity models are growing at a rapid pace.”
With regards to future predications for South Africa, Vermaak says that 2008 will be a year of getting to grips with a slowing economy, a construction boom, instilling a service culture for 2010 and tackling inequality and crime. “As a nation we have the resilience and ambition to meet and exploit these challenges. We need to send positive messages to overseas investors – if we don’t we can’t expect investor confidence and foreign direct investment which is crucial.”
While the outlook for the short-term insurance industry may sound a bit disparaging – it’s not all doom and gloom, especially for Auto & General Insurance. “Over the past number of years Auto & General Insurance has renewed itself. We have streamlined processes, introduced new and enhanced products and revitilised our culture culminating in a Service Charter and a brand that better represents what Auto & General and its people deliver. We are excited about the service our clients will experience in 2008 and look forward to introducing a pipeline of exciting firsts and improvements that will position us for success,” concludes Vermaak.
