Motor Insurance – Achieving efficiencies in a fragmented market

Jonathan Holden.

Motor insurance stands the risk of becoming dis-intermediated by the retail industry unless it implements immediate cost cuts and efficiencies as critical twin levers of performance. That is the view expressed in the Future Now Report, which takes a closer look at the current and future state of the motor insurance industry in South Africa, released by Innovation Group.

Holden identifies two ‘critical levers’ - technology and the convergence model whereby underwriters are able to offer a broad range of cover. “In fact these two levers are themselves rapidly converging into a single lever as technology is starting to drive the convergence model. Business agility, operational efficiencies and transforming policy administration are key to remaining relevant and competitive

“This is a global trend. International experience shows that accident rates are falling as technology improves the safety ratings of new vehicle models. While talk of the ‘driverless car’ may seem a far off fantasy – aspects of this revolution in motoring will certainly result in fewer accidents in the future, both locally and abroad. In order to remain relevant and to become Future Ready, Insurers would need to start offering cover which takes a holistic look at the policyholder’s lifestyle and driving behavior,” says Holden.

This trend, though inevitable, will most likely be delayed in the domestic insurance market where approximately 65% of cars are uninsured.

“The report highlights various initiatives currently under way to correct this discrepancy. South Africa typically follows international trends, of which one trend is lower accident rates through technology, but the other is rapidly growing insurance premium revenue in emerging markets. Although many people consider insurance to be a grudge purchase, it is in fact a $4.3 trillion global business with insurance premium revenues in emerging economies showing an annual growth rate of 11%. To share in this growth, local insurers need to adopt a strategy of convergence.”

With accident rates falling in Europe, a process of consolidation of the supply chains among motor insurers is underway. The resulting volume increase – notwithstanding declining accident rates – is enabling considerable savings within the incident management supply chain. “However, the first step towards achieving this supply chain efficiency is data-sharing. In addition, in Europe and other developed markets it is the norm rather than the exception that underwriters are one-stop-shops,” he says.

It is also the norm to have chains of affordable repair workshops. This process has not yet commenced in South Africa.

He notes that the South African Insurance Association (SAIA) is currently working on a project to encourage data sharing so as to improve the quality of data available to the industry. SAIA is also in the process of lobbying government to introduce legislation making third party property insurance compulsory. It has appointed a task team to undertake research and develop a business case to be presented to National Treasury, which in turn will forward it to the Ministry of Finance – a process expected to take two to three years to get through parliament.

“With these initiatives, I believe that motor insurance in South Africa will be unrecognisable in five to ten years’ time,” concludes Holden.