Short-term insurers must adapt to survive

The past year has been tough on local businesses – short-term insurance companies included.

According a report on the results for the South African short-term insurance industry by the Financial Services Board (FSB), six out of 25 insurance companies in the “typical insurer” category reported an underwriting loss for the six months ending June 2009. Three short-term insurers in this category reported an operating loss for that period.

Despite the challenges, Auto & General Insurance has performed considerably well and has emerged from the economic downturn still showing steady growth.

This is significant considering the key finding of a recent survey compiled by KPMG was that declining disposable household income coupled with lower employment statistics has greatly reduced the consumer’s ability to pay for insurance.

“It’s been a challenging year for most businesses across most industries, and the domestic business environment remains tough. The short-term insurance industry is no exception.

“We believe that our continuing strong performance is thanks to our customer-centric approach which emphasises service excellence, product innovation in line with customer wants, and delivering meaningful value,” says Auto & General’s CEO, Leon Vermaak.

Although the economic climate continues to put pressure on the industry, he says there is still enormous opportunity for growth for short-term insurers that are able to adapt.

“Insurers must place greater emphasis on aligning their offerings to consumer needs. This is more important now than ever before. Consumers are becoming more discerning about what they want and expect from their insurance company, and given the pressures of the economy, they are also more discriminating about how and where they spend their money. Short-term insurers must ensure that their solutions meet consumer expectations and deliver value if they want to stay in the game,” he says.

Another report by PriceWaterhouseCoopers suggests that South African insurers face significant marketing, product design and distribution channel battles in the future. It also predicts that the trend in the next three to five years will be towards simpler and more transparent products.

Vermaak agrees.

“Short-terms insurers must be smarter, not only in terms of designing insurance solutions that meet the needs of today’s consumer, but also in terms of how they market their products and how they speak to their clients. Consumers want to be spoken to in a language that they understand. They want simplicity and they want transparency.

“There is already significant emphasis on the rights of consumers and the obligation on insurance companies to protect and deliver on those rights,” says Vermaak.

He concludes saying that while Auto & General Insurance is stable, the company is not complacent.

“The crisis is not over yet. We know that we have to keep our eye on the ball and remain flexible to changing market conditions.”