Working toward sustainable short-term insurance
The Insurance Conference 2011 was held at Sun City from 24 to 27 July 2011. It served as a platform for industry stakeholders to address their concerns over the sustainability of the short-term insurance sector, in South Africa and globally. Co-hosted by the Insurance Institute of South African (IISA), the Financial Intermediaries Association (FIA) and the South African Insurance Association (SAIA), the conference attracted more than 700 individuals, including 43 exhibitors and representatives from organisations in 17 countries.
Ian Kirk, chief executive of Santam, addressed the audience early on the first day of proceedings. In keeping with the theme of the event he talked on sustainable development in the insurance industry. “The industry has made substantial progress in a number of areas,” said Kirk. “We’ve made progress on the sustainability of the motor book, for example, thanks to a wide range of initiatives on a collaborative basis – and we’ve put a mechanism together as an industry, through various industry associations, to tackle problems as they occur.”
An insurance overview 2011
Insurance success is linked to both the domestic and global economy. Despite recent economic pressure the Financial Services Board (FSB) reported an impressive 11% growth from the short-term industry for the first quarter of this year. And thanks to various improvements in business practices the industry’s underwriting margins recovered nicely. “Relative to the rest of the world our industry is generating acceptable returns,” said Kirk. Going forward insurers would have to consider the value proposition to their stakeholders, manage their capital prudently and address the ongoing sustainability of the insurance sector as a whole. To ensure success through 2011 and beyond insurers would have to tackle operational efficiencies, soak up economic pressures, invest in technology and processes and deliver innovative product and services, always with a focus on the client.
Insurance is a people business. As such it must address the capacity and people dilemma. “Not only do we have to bring new people into the industry, but we have to make sure we bring in the right skills to transform the industry,” said Kirk, before adding that it was imperative that the industry transform to reflect the society it serves… He believes this transformation can be achieved without chasing existing experience from the industry. Critical skills have to be retained – perhaps in different roles – but with a clearer mandate to transfer their skills.
As we power through 2011 the consumer is evolving. “The game is changing for all of us,” said Kirk. He believes that the intermediated model will remain intact for many years! But technology has created new opportunities for the marketing and distribution of insurance product in other sectors, notably the micro-insurance space. Although access remains an issue there are different approaches that promise success. The challenge for the industry is to understand the new (emerging) market segments better and to gain insight into what these sectors require. Technology will be one of the enablers to transform the sector further.
Challenges remain
Kirk identified a number of obstacles in the local business environment. Despite ongoing marketing attempts South African consumers remain underinsured. The phenomenon is not unique to our shores with major natural disasters in Japan, Queensland and Auckland revealing similar flaws. “Under insurance is a significant problem around the world – but it is a significant opportunity for growth too,” he said. The flooding and quake disasters point to climate change as a major ‘flag’ in the short-term industry. It is clear that insurers and re-insurers will have to up their games as so-called 100-year events occur more frequently.
Aside from infrastructure the efficient administration of state assets is cause for concern.
Auditor general Terence Nombembe confirmed recently that only seven of the country’s 237 municipalities received clean audits in the 2009/10 financial year. “There are many reasons – system, legislative, political, skills shortages etc – but we as business have to start addressing these systemic risks,” said Kirk. For short-term insurers functioning water systems, fire protection systems and the ability of municipalities to respond to various disasters are non-negotiable.
In closing Kirk observed that the overall insurance sector enjoyed solid fundamentals and that conditions for business in South Africa were good. The challenges mentioned could be tackled on a coordinated basis with input from all stakeholders. “The challenge for stakeholders in the short-term space is to stay relevant, because if we don’t new players will pick up on our inherent inefficiencies and enter the market,” he said
Editor’s thoughts: Short-term insurers will have their work cut out to maintain underwriting margins at acceptable levels. As part of the solution they will turn to intermediaries to write new business among South Africa’s un- and under-insured. Do you agree these opportunities exist – or are opportunities for new intermediated short-term insurance business dwindling? Please add your comment below, or send it to [email protected]
