SA insurers must begin looking beyond SA or risk being left in the starting blocks, says Deloitte
South African insurers could find themselves stuck in the starting blocks in the race to get market share in growing African markets unless they act before companies in developed countries fully realise just how fast the ‘riches of Africa’ are growing, says Deloitte.
In his annual insurance review, which sets out the challenges ahead for the local insurance industry in 2012 and beyond, Yuresh Maharaj, Partner: Insurance Industry Country Leader at Deloitte, says that it is important for South African insurers to leave their comfort zones to gain status and competitive advantage on the African continent before foreign competitors enter markets and ‘eat your lunch’.
“Entering new markets brings regulatory, political and social risks. But, given the expected GDP growth and significant change in consumer expenditure patterns of other African economies, insurance subsidiaries in Africa are increasingly likely to offer greater returns on new investments than local operations. Overall, the growth appeal of African markets far outstrips the challenges involved,” says Maharaj.
In the comprehensive review, entitled ‘Preparing to turn the corner’, Maharaj says, that after a period aggravated by the financial crisis, social discrepancies, disasters and climate change induced events, the industry is continuing to show signs of improvement regardless of the dent events have had on underwriting profits.
The most prominent issues that the insurance industry has to consider going forward, says Maharaj are:
· The regulatory shake-up that is underway with the incorporation of the Solvency II principles into current regulations, the implementation of the new IFRS 4 Phase II accounting standard for published reporting of insurance contract liabilities, and the introduction of other numerous regulatory changes.
“Add draft binder regulations and carbon tax discussions to the regulatory cement mixer and it is clear that having a steady hand will help in paving a smoother path for South African insurers over the next couple of years,” says Maharaj.
· Digital consumers who are continuing to be more empowered and knowledgeable than in the past.
“Insurers will need to pay more attention to growing consumer and privacy laws when collecting data to model their strategies. Insurers that manage to bed down their data management practices in 2011 will find themselves well positioned to meet most of the Treating Customers Fairly best practice principles implemented by the Financial Services Board.
“Overall the insurance industry has a long way to go to become a major player in the online market. With digitally savvy consumers on the prowl, social media should not be ignored as it can be used internally and externally to improve marketing, business intelligence, productivity, sales and service,” says Maharaj.
· The renovation of data systems for risk management and value optimisation.” Regulation is forcing better alignment of risk and finance data and a much larger focus on risk data. More insurers are making data quality management a primary value driver and core consideration within their operations and decision-making processes. Yet, while information is the lifeblood of Enterprise Resource Management initiatives, there appears to be much room for improvement in data management.
“It is key for insurers to go beyond merely replacing platforms. They must think strategically about how data is deployed throughout their organisations, recognising that integrity of data is not only critical to the effective management of risk but also understanding that different parts of the organisation have different uses for the same data.”
“Going forward insurers will be called upon to meet the evolving needs of more price and service-conscious consumers, and work comfortably in an increasingly virtual world.
“Africa, which is expected to boast seven out of the ten fastest economies in the world between 2011 and 2015, must be factored into growth plans,” concludes Maharaj.
