PwC SA Insurance Survey reveals that skills shortage and training of competent staff are the most pressing issues, sadly one of the reasons for the “brain drain” is the high levels of crime

The SA insurance industry is set for a challenging time as economic conditions remain volatile, consumerism continues and the regulatory environment keeps evolving. New business growth prospects and the durability of existing policies are being adversely affected by reduced consumer discretionary income. It is vital therefore that the industry evaluates and adapts to the needs of the emerging market consumer and continues its progress on winning back the confidence of the SA consumer in general after a period of negative publicity.

PricewaterhouseCoopers’ recent survey - Emerging Trends and Strategic Issues in South African Insurance 2008- takes a look at the major trends, developing issues and self criticisms in the insurance sector. The report is compiled from personal interviews with managing directors and senior executives in 27 companies equally divided between long-term and short-term companies.

Barry Stott, Lead Financial Services Partner PwC SA says the survey shows the regulatory environment continues to challenge the industry. “Not only do they have to cope with regulation and legislation such as the Financial Sector Charter, Black Economic Empowerment, Financial Advisory and Intermediary Services Act, Financial Intelligence Centre Act, International Financial Reporting Standards and the National Credit Act, there are additional challenges in the pipeline with the Insurance Laws Amendment Bill and National Treasury’s release of discussion papers in micro-insurance and contractual savings.”

Ilse French, Partner Insurance Technical and Knowledge Management added that another difficulty facing this sector is the skills shortage and effective training of staff. The most pressing out of 45 issues considered by respondents, and gaining considerable momentum as a matter of urgency, is the recruitment and training of competent staff, and ninety percent of respondents believe pressure to address the problem is rising. This issue surfaces throughout the survey. New programmes have been slow to emerge and emigration of key personnel such as senior insurance executives was mentioned for the first time this year. Several respondents agreed there has been a lack of interest in skills development and the industry is lagging on empowerment initiatives. The skills shortage is most acute in the BEE area, followed by senior executives and then underwriting.

Industry participants are recognizing the customer is now flexing his rights and has become more knowledgeable and sophisticated, thereby impacting on their transparency, pricing, promotion and distribution. And as new customers enter the market for the first time, insurance product providers are being forced to re-examine their product offerings, distribution channels, pricing structures and the need for consumer protection. There is a significant trend to direct channel distribution and this is even being seen in the large “traditional” companies and major retailers.

This rising tide of consumerism was demonstrated by ranking this factor as the most important driver of change, displacing the Financial Sector Charter, which fell to seventh position for the short-term companies and third position for the long-term companies.

The report also seeks to identify emerging trends and strategic issues over the next three years. The industry is quick to admit it has several shortcomings : for example, the value chain, the lack of skills development, limited cross- industry co-operation, tensions between the very large companies and the smaller ones, shareholder pressure and the limited success of the low cost Zimele products.

Respondents identified four markets in this industry – being assistance business, credit life, motor insurance and life risk products - as having become more competitive since 2006. Alternative Risk Transfer, group business and property investment products have remained at the same intensely competitive level. The primary source of competition within the industry was identified as major financial institutions already active in the market.

A majority of participants believe that regulatory pressure will “increase substantially” over the next three years. The National Credit Act has affected the insurers’ business and they hold mixed opinions on its impact. The proposals on contractual savings will redefine the role of the life industry in the savings market. Participants think the new commission regulations will lead to better advice and have a negative impact on intermediaries. Unanimous support for Financial Condition Reporting was expressed by the short-term insurers as it will improve capital assessment techniques and risk appraisal.

The short-term companies anticipate significant annual growth over the next three years. Most companies lie along an axis of 15-25% in both 2008 and 2011. Two companies predict 30% or above revenue growth in 2011. The long-term companies see some tapering in annual growth by 2011. Most are in the 10-20% range in both 2008 and 2011. Three companies that predict 30% growth in 2008 see this softening to 20% in 2011.

The PwC report was researched and written by Brian Metcalfe, Ph.D., Associate Professor in the Business School at Brock University, Ontario, Canada, who has authored numerous reports for PwC both locally and internationally.

The report also includes peer ranking overviews where industry players rate their competitors’ products.