Emerging market expansion
In our industry word has it that emerging markets are opening their doors to international insurers. Industry experts report that Africa will be responsible for $80 billion of global revenue from the short-term insurance industry within the next twenty years, making it the “new land of opportunity”. In fact, Africa is becoming as important as Western Europe when it comes to short-term insurance premium growth.
However, one needs to know how to carry this transaction out. For example, the sports coach who is standing on the side of the field screaming instructions at his players fails to realise how hard it is to implement his instructions in the game. The industry is writing a whole dissertation about the emerging market expansion story without giving practicable advice on how this can be conducted. The KPMG Insurance Survey 2014 looked at the countries within the Brazil, Russia, India, China and South Africa (BRICS) economic block in order to identify some of the most important growth trends from these markets.
Not buying caipirinha’s
Since the recovery from the Global Financial crisis, Brazil has been one of the biggest emerging markets. Increased spending power means there is a growing middle class, and surprisingly, Brazilians are not spending this money on parties or samba lessons.
Erik Bleekrode, from KPMG Brazil, says that innovation in the Brazilian insurance market has primarily been driven by the growth in average household incomes, particularly within the growing middle class. “Customers are demanding more innovative products such as only insuring specific parts of a car,” says Bleekrode.
He adds that aggregators have also recently emerged in the market. However, customers are only relying on these sites for research and clients are continuing to purchase products through brokers who still retain a high level of trust with customers. “Going forward, there will be significant uptake in the auto and healthcare sectors,” says Bleekrode.
Embracing Indian economic growth
One of the major mindsets insurers need to work past is the way they price risk. New models need to be hybrid and adaptable, taking into account a number of factors.
“Insurers in India have been moving towards a more evolved pricing mechanism. For instance, rather than relying on simple age and health based pricing, many health insurers have started to include other factors such as geography and occupation into their calculations,” says Shashwat Sharma from KPMG India.
Another key trend has been the simplification of products by the life insurance industry. Aided by regulatory guidelines, life insurers have moved from complicated product forms to simplified structures focusing on term insurance and add-on benefits.
The fall of the Eastern Block
During World War II and the Cold War, Russia was a world economic superpower. However, the fall of communism changed this outlook significantly and the once Mighty Russia is one of the only countries within the BRICS block which is struggling for growth within the insurance industry.
“Demand for life insurance products, which has been enjoying an annual growth of about 60% up until last year, has slowed to around 40%. This is being driven by lower demand for credit life insurance products which are designed to cover risk on consumer loans. At the same time, auto insurance started to come under consumer protection laws which resulted in an almost 20% increase in loss ratios in 2013,” says Adrian Quinton from KPMG Russia.
He adds that it is worth noting that the insurance industry is strongly advocating for harder rates, particularly in the automotive sector. However, until these increases become available most insurers have reduced their rates of new policy formation, in some cases by as much as 80%.
A Valentine’s Day pregnancy pass
One of the common themes in all of these markets is that product innovation is a necessary component to facilitate successful growth and this is evident in the Chinese market.
“There has been significant innovation on the product side in China, particularly in the creation of targeted products such as a product covering pregnancy insurance for Valentine’s Day. China’s insurers are also starting to see success in the packaging of covers, such as automotive plus personal accident cover, and the offering of value-added services such as 24 hour roadside assistance as a way to differentiate their products,” says Mark Bain from KPMG China.
He adds that China’s insurers have proven themselves to be fast innovators in the areas of customer data analytics, customer segmentation and the introduction of propensity modelling, particularly for direct channels.
Keep your eye on the prize
Because South Africa is catching up with the rest of the world when it comes to regulation, we are experiencing all of these challenges as the economies in the BRICS block boast similar characteristics. There is a definite need for product innovation in South Africa as there needs to be customer segmentation. With a growing middle class which is becoming more educated on the financial services industry, it is crucial that the lower income earners are included.
The survey shows that the short-term industry has remained pretty stable, while the long-term industry has reported impressive operational profits with more than 20% growth in single premium incomes.
Editor’s Thoughts:
If we look at the South African Development Community (SADC), there are a lot of local and global insurers who are successfully selling their products in these markets. The growing middle class is a feature across the continent so customer segmentation and product innovation is important when expanding into these markets. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
Comments
should put their innovation hats on and come up with something meaningful.
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