Short-term insurance – the road ahead
For the past few years, the short-term insurance industry has been impacted by surplus insurance capacity, low economic growth and consumer disposable income coming under pressure. Insurers have not been able to increase premiums at the rate at which claims costs have increased, as consumers are very price sensitive and the market is highly competitive. However, this is slowly changing, says Rikus Visser, CEO of PSG Insure.
“The large insurers are putting through more realistic increases on their premiums, which will provide some relief for insurers. However, margins are still being squeezed, as the cost of claims continues to increase,” he says.
While there were no major weather catastrophes in 2014 – unlike in 2013, when there were three – the cost of claims remained high, mainly due to the devaluation of the rand. There were still periods of intense rains, both in summer and winter, resulting in more accidents on the motor side.
In addition, as vehicles become more and more advanced, so repairing them becomes more complex and thus more expensive, to the point where insurers are writing off more vehicles than they used to. Of course, replacement costs are also increasing, which is expected to continue in 2015.
Claims due to crime are growing, both in number and in value. This includes stolen vehicles and trucks, as well as household goods theft. Shopping mall heists were a chilling feature of 2014, resulting in more claims in the retail sector.
“Unfortunately it does not appear that the trend is changing. Some of these incidents can be attributed to South Africa’s economic circumstances, especially the lack of sufficient employment,” Visser says.
Consolidation
Visser expects that consolidation will be a feature of the industry going forward, particularly on the distribution side. This will be driven primarily by the regulatory environment, which is moving into an implementation phase.
“The major regulatory shifts are on the table in one form or another: the wave hitting us now is implementation. Deadlines are getting shorter and the Regulator is getting more insistent.”
From the insurer’s point of view, for example, there will be greater capital requirements and risk management processes as a result of SAM (Solvency Asset Management). From the intermediary’s point of view, there are the FAIS requirements and initiatives like RDR (Retail Distribution Review), which, if the proposals outlined in November last year are enacted, will put pressure on the margins of firms. This will have a damaging impact on small-to medium-size brokerages in particular.
Opportunities
Challenges aside, there are opportunities for insurers and intermediaries alike, according to Visser. For insurers there is the emerging market which, traditionally, has not been that comfortable with the concept of short-term insurance. “The opportunity is to increase educational and awareness programmes about the benefits to your personal balance sheet of having your risks covered.”
For intermediaries, there is the opportunity to continually identify different risks and highlight solutions to their clients. Cyber-crime, for example, is a fairly new area that intermediaries need to understand and help clients with commercial cover buy risk products for.
“What happened to Sony at the end of 2014 is a dramatic example of what can happen and how losses can multiply,” Visser says. Companies can also be insured against more intangible losses such as loss of reputation.
“All this will make for a challenging but exciting 2015,” Visser concludes.
