The evolving landscape of insurance

As consumers embrace new technologies, demand personalised experiences, and navigate an interconnected global community, industries across the board are compelled to adapt.

One such sector undergoing a profound metamorphosis is the insurance industry. The traditional paradigms that once defined insurance are being reshaped by the expectations, preferences, and behaviours of the contemporary customer.

With the above mentioned, FAnews spoke to Soul Abraham, Chief Executive: Retail at Old Mutual Insure about the dynamic trends shaping the customer of today and the impact this has on the insurance landscape.

The trends of the last few months

According to Abraham, the economic challenges globally have made it difficult for clients, with rising interest rates and increased cost of living. They have less disposable income to spend on what has traditionally been seen as a grudge purchase. 

“It has been all about affordability, post-pandemic, and throughout 2023. With interest rates increasing and disposable incomes shrinking for most consumers locally and globally, consumers have been struggling to pay for insurance, whether it’s short-term insurance or other types of insurance. This is showing up in our analysis, with higher lapse rates and cancellation ratios, which adversely impacts insurers’ revenues. We are seeing fewer, and fewer people insured. The proportion of cars being insured, and the insurance penetration ratio have declined over the past few quarters. This is not ideal and something we need to work on as an industry because our insurance penetration is not high as it stands and now it’s decreasing due to the economic conditions. This decline has occurred across all typical consumer insurance products, including car, home, building, personal lines, and all risks insurance,” he said. 

At the claims stage, Abraham said there’s more and more pressure on insurers to settle claims even though these may not be covered by the insurance policy. “That’s making customer and broker interactions difficult, and this is typical behaviour when the economy is going through difficult times.” 

“There’s also been a significant increase in the number of fraudulent claims be it syndicates or customers embellishing their claims by adding say a cell phone when a TV was stolen. That makes our lives difficult from an investigation and fraud prevention perspective, again making customer interactions difficult,” he added. 

The other trend, according to Abraham, is climate change. “The proportion of claims linked to climate change in the last couple of years has increased significantly - some six to seven-fold in climate-related claims. These last two years have been particularly bad with the KwaZulu Natal floods last year and multiple other flood events all around the country impacting insurers. That ultimately leads to more claims, which unfortunately translates into higher insurance premiums in the long term for consumers. On top of the fact that disposable income is at a low point, it makes insurance affordability more difficult.” 

Expectations in 2024

The hardening of insurance rates, according to Abraham, will begin to slow down in 2024, in line with the decline in inflation underway. “There is a little more to go to make insurance sustainable, but it will be much lower compared to 2021 and 2022, which should take some pressure off the consumers from an affordability perspective. But this will depend on inflation remaining low and not just the headline consumer price index but the basket of goods that short-term insurance considers. But we do expect inflation in our short-term basket of goods to be much lower, which should translate into less hardening in insurance premiums during 2024.” 

“Climate change will remain top of mind. There is a lot of work being done locally and globally to understand climate change and the impact it will have on insurers, people, and businesses. The sad reality is that climate change will make up a higher and higher proportion of claims over the next five to 10 years compared with the previous five to 10 years and that will come through in the rates and underwriting criteria of insurers. We will have to become a lot more scientific about where and how we insure customers, looking at flood lines, sea levels and fire risks, making sure we are not overexposed to any one peril in any one area, down to a suburb, street or metropolitan area. Underwriting and pricing will become critical and that will ultimately feed down to customers via higher rates for excess structures and, in limited cases, limiting their exposure to certain areas,” he continued. 

“We see a couple of opportunities arising in 2024. Insurance has historically been viewed as a grudge purchase globally and locally. However, climate change and its aftereffects will provide brokers and advisers with an opportunity to shift the perception of insurance away from being viewed as a grudge purpose to being seen as an essential purchase. The reality is that consumers won’t be able to avoid climate change because it is going to impact them through the latent risks of too much rain or flooding, rising sea levels or dry, drought and fire conditions,” he emphasised. 

As an industry, we have the know-how

“For brokers and advisers, advising about the insurance consequences of climate change is a lever that we’ve never really used before. Brokers and advisers must take this opportunity to use it as an important selling point for uninsured consumers who could be exposed to significant economic loss because they are uninsured,” said Abraham. 

“Insurers have the know-how and experts in-house that can help build adaptive capacity and sustainability across the industry. These events could be very large events and insurers need to protect consumers while remaining solvent,” he added. 

Abraham mentioned that we, as an industry, must all embrace data and technology and ensure that our short-term insurance industry transitions from a manual, administrative capability between brokers and insurers to a more digitised, data-led industry. “We mustn’t lose momentum; we must keep pushing through digital solutions that make our brokers and consumers’ lives easier and bring down the cost and ease of doing business over the next three to five years. This will ensure our industry remains sustainable, and profitable and attracts new entrants, including young and upcoming brokers.” 

Ensuring clients are adequately insured

In his concluding remarks, he said, “The last few years have been difficult, given the challenging market conditions in the face of a weak economy, declining disposable incomes and climate change adversely affecting customers. However, we look forward to 2024 being a more positive year, as inflationary pressures ease and we work together with brokers to ensure their clients are adequately insured against the risks that lie ahead, particularly on the climate change front.” 

Writer’s Thoughts

In today's fast-changing world, industries, including insurance, must keep up with evolving customer needs and trends. As we head into 2024 and beyond, let's see challenges as chances to grow and change for the better. It's through tough times that real innovation happens. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za