Steading the ship in a challenging economic climate
A tough underwriting cycle, which started in 2012, continued to affect the industry in 2013 and has also left its mark in 2014. According to Paul Carrager, Managing Director of Compass, the industry also needs to come to terms with a few other challenges before it can move forward.
The insurance industry has been severely affected by the global financial crisis and companies need to find ways to highlight the importance of insurance at a time when insurance is considered as a ‘grudge-purchase’.
Challenged marketplace
Speaking at the annual Compass Stars function, Carrager pointed out that 2014 has been typified by premium growth being under pressure. There has also been a significant increase in costs associated with regulatory changes which is affecting every company in the industry. The weakening of the Rand and the impact of it on claims costs has also been felt by all in the industry.
Insurers can only absorb costs up to a certain point before these are passed down onto the policyholder. There have been rumours of hardening rates for a number of years, perhaps 2015 will be the year that this is implemented.
“In addition to the increased cost pressures, short-term insurers also need to come to terms with deteriorating and volatile weather conditions and other natural disasters. This has affected many companies in the industry and has had a significant impact on industry profitability. We also cannot discard the financial impact that labour strikes have had on the industry which will continue going forward,” says Carragher.
Problems with fraud and regulatory concerns
It is a well reported fact that fraud costs the insurance industry billions of Rands a year. Carragher points out that this is also a problem for Compass.
“There has been an increase in the frequency of vehicle accident rates, with an increase in uninsured motor vehicles on our roads of between 60% and 70%,” says Carragher.
These are all the cost drivers in the industry pushing the price of insurance up. This is particularly dangerous in the short-term industry where there is significant competition in terms of pricing. This is causing a bit of reluctance among insurers who may be tempted to increase rates.
Added to these cost issues is the pressure from the Financial Services Board (FSB) to comply with the new regulation it is imposing on the market. The industry has mostly come to terms with complying to Treating Customers Fairly (TCF) as the FSB has been expecting companies to comply with the six TCF outcomes since the beginning of the year, and the industry is still waiting for the real impact of the Retail Distribution Review (RDR) on the market.
Solvency Assessment and Management (SAM) sets new reporting standards for the industry as well as new rules that insurers need to comply with. One of the biggest requirements is the minimum capital requirement that companies need to comply with. This may prove to be a challenge for companies who are trying to maintain costs.
Hoping for a better year
On a more positive note, Carragher says that while 2015 will still remain challenging, he is optimistic that the industry can turn things around in 2015.
“In order for companies to turn things around in 2015, they will need to focus on niche and specialist insurance offerings as customers are increasingly looking for personalised policies. Companies also need to look at their risk selection and how they can better understand the risks that they are underwriting. In this way, they can better price the risk they are taking on. Innovation will also be a key element to success in 2015 to sustain growth in the market conditions. Big Data will also play a major role in the industry, so the analysis and interrogation of data will be important. Obviously, the last success factor will be effective cost management,” says Carragher.
Compass Award winners
Compass also honoured its top performing business partners of 2014.
Winner of the Most Improved Loss Ratio for three years (2011-2013) with a Gross Underwritten Premium of less than R50m was Health & Accident.
Winner of the Most Improved Loss Ratio for three years (2011-2013) with a Gross Underwritten Premium of more than R50m was Thatch Risk Acceptances.
Winner of the Combined Ratio Award with the Lowest Combined Ratio over the past three years (2011-2013) where the Gross Underwritten Premium was less than R50m was Synergy Targeted Risk Solutions.
Winner of the Combined Ratio Award with the Lowest Combined Ratio over the past three years (2011-2013) where the Gross Underwritten Premium was more than R50m was Firedart Engineering Underwriting Managers.
Editor’s Thoughts:
One of the key elements insurers are looking to work towards is maintaining costs. While this is achievable if insurers can price their risk appropriately and understand the data that is becoming central to their business, there is a certain cost that is associated with regulatory compliance. These costs need to be kept at a minimum as the full impact of regulatory reform is revealed to the market. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
