Santam CEO speaks at the SAFSIA Road Show

Steffen Gilbert, CEO of Santam, presented the keynote speech at this year's South African Financial Services and Intermediaries Association (SAFSIA) road show. The Johannesburg leg of the event was held at the Indaba Hotel in Fourways on Friday, 23 March

SAFSIA is committed to serving the financial services intermediary, promoting transparency in the industry and building relationships between insurers, intermediaries and their clients.

Outlook for the short-term insurance industry remains healthy

Gilbert started his presentation with a look at the prevailing short-term insurance environment. He mentioned that the underwriting profit margin offered good opportunities to all players in the short-term field- and that certain niche players had the opportunity for even better returns.

A deeper analysis of the nature of short-term insurance being written revealed that the balance between personal and commercial lines remained constant, with each contributing about 50% to the total. Intermediaries should be concerned by the fact that the non-traditional market was gaining ground in the personal lines field. These sellers currently make up 37% of the personal lines universe though they are expected to account for as much as 52% of the business by 2010.

With regards market choice, Gilbert believes consumers still have a large enough array of products. While the big 10 insurers of the early 90s has shrunk to the big four insurers today, there are still plenty of smaller insurers offering product to the market. This big four accounts for 50% of total market share, while direct insurers grab 10% of the pie.

Direct insurers spending millions on promoting brand awareness

Direct insurers (including Dial Direct and Outsurance) were spending nearly 70% of the total insurance advertising spend. This money was being spent across all media and print channels in a continued drive to wrest market share from broker backed insurers.

The situation was quite evident when looking at the results of various brand awareness surveys. Santam still enjoyed strong recognition, but the direct insurers were filling more and more of the top 10 spots.

In light of this, Gilbert identified the importance of continued marketing spend to increase brand awareness. There are two areas where Santam spends money to maintain its market leadership. The first area is on brand awareness and the second on intermediaries.

"Empower your company for the future"

Discussing the challenges of Black Economic Empowerment (BEE) on the industry, Gilbert encouraged smaller brokers and intermediaries to take the necessary steps to ensure their businesses could meet future operating requirements. He especially appealed to smaller brokers to realise the business risk in not being BEE compliant.

There are a number of challenges facing the insurance industry. Amongst these are the impact of regulation, cost of management, negative media perception, servicing the low income market, a low inflationary environment, new commission dispensation and competition from non-retail players. These threats apply equally to the long-term and short-term insurance operating environments.

Gilbert spent some time discussing competitive threats to the industry. The first comes from the banking channel and other retailers. While he believed banks would continue to make inroads into certain sectors of the market, a larger threat could come from retail stores expanding their financial services offerings. He mentioned activities at Tesco, one of UK's leading retailers as an example of the type of threat insurers could soon face.

As for direct insurers, Gilbert felt it would be in the consumers best interest to be more informed about differences in policy wording in the future. The current direct selling method focuses on cover and price, and telesales agents do not spend time explaining policy wording. Consumers were making decisions under the incorrect belief that they could compare direct insurance policies based on cost only.

Editor's thoughts:
Brokers and intermediaries who attended the SAFSIA road show welcomed Santams announcement that it would soon be a 100% intermediated business. Do you welcome this announcement? Send your comments to [email protected].