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Here’s what insurers must do to prosper through 2012

06 September 2011 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

“The insurance environment in South Africa has been aggravated by the financial crisis, social discrepancies and climate change induced happenings and disasters, which have impacted both consumer pockets and general claims trends,” writes Yuresh Maharaj,

Forget death and taxes – more regulation is an insurance industry certainty!

Financial intermediaries who think they are being regulated out of business should spare a though for financial sector businesses such as banks and insurers. As Deloitte points out, South Africa’s long and short-term insurers are slap bang in the middle of a global regulatory shake up. If they hope to maintain their edge on an increasingly competitive international stage they have to regulate apace with their offshore peers. “No one in the industry will be twiddling their thumbs over the next few years,” opines Deloitte.

One of the major initiatives underway at present is the new risk-based solvency regime known as Solvency Assessment and Management (SAM), which is ambitiously scheduled for a 2014 implementation. The idea is that SAM will equate to the Solvency II initiative in Europe. (We will leave discussions on the SAM roadmap and implications of SAM for local insurers for a future newsletter). The hard-pressed insurance industry is concurrently working on a new accounting standard – IFRS 4 Phase II – which sets out rules for the published reporting of insurance contract liabilities. But there’s more… Other regulatory changes lying in wait for South African insurers include the draft binder regulations and carbon tax discussions! It is little wonder that the Insurance Review document dedicates many column inches to regulatory issues. One gets the feeling the industry is over the barrel of regulators who have introduced so many layers of complexity it is becoming near impossible to conduct cross-border business.

We almost fell from our chair when we read about a new European Commission-proposed initiative called Omnibus II… What? This new legislative steamroller proposes to make changes to the yet-implemented Solvency II and to further delay the implementation of Solvency II throughout the European Union. The best way to look at this additional administrative burden is as a “bridge” to assist European insurers in crossing over from Solvency I to Solvency II. Surely an industry is in trouble when it has to introduce reams of rules, regulations and administrative processes just to move from one system to the next?

Learn to “wheel and deal” with tech-savvy consumers

Whatever the regulators do the success of an insurer hinges on its ability to sell insurance product to the end consumer. To this end insurers must be mindful of their distribution channels as well as changes in consumer attitudes. “Much has been unpacked about the importance of customer relationship management, centricity and intelligence over the past couple of years and many insurers have begun making the shift to more customer-centric models of operating,” observes Deloitte. If company’s fail to adopt a customer focus, new legislation such as the Consumer Protection Act (CPA) and the proposed Treating Customers Fairly (TCF) initiative will force them to do so!

How will insurers reach these consumers in future? Deloitte answers: “Modern insurers will need to look towards conducting business through multiple channels and platforms in order to satisfy the changing needs of both employees and consumers who are increasingly more affiliated with social networking and mobile technologies such as smart phones and tablets.” We have witnessed an accelerating trend in both the short and long-term industries towards online (or direct) distribution models. As they say in most Lottery advertisements: You have to be in it to win it! And as much as the industry stalwarts pledge allegiance to their broker distribution channels, they have been forced to hedge their bets in order not to lose too much market share.

Tomorrow’s insurer has to be tech-savvy. They will have to “sell” to a new generation raised on social networks such as Facebook and Twitter, consumers who have limitless “at your fingers” information. The Insurance Review encapsulates this better than we can: “Insurers will need to accept these social changes as modern day consumers will increasingly demand a different experience from insurance companies, which is very different from the channels, processes, products and technologies that are in existence today!” It appears the winners will be those who can release innovative product across multiple distribution channels.

“Dr Livingston I presume?” It’s time to set up shop in the rest of Africa

South Africans are so obsessed with the BRIC economies (Brazil, Russia, India and China) that they’ve forgotten about the BRIC on their doorstep. South Africa’s invitation to join this group of elite emerging markets has more to do with its “gateway to Africa” status than anything else… The rest of the world knows that Africa – with almost a billion inhabitants – will morph into one of the most promising growth nodes in future years.

Deloitte believes that the growth appeal of African markets far outstrips the regulatory, political and social risks of setting up business there. Need proof? The IMF lists five African economies on its “Top 10” GDP growth table between 2001 and 2010. And over the next five years the continent will probably boast seven “Top 10” economies! China and India have already cottoned on and are among the largest inward investors into the continent. And local insurers and financial services companies have been pushing into other Africa markets too. They will have to redouble their efforts to secure market share!

We’ll leave the concluding remarks to Deloitte & Touche: “Insurers face potentially catastrophic threats such as natural or man-made disasters which are likely to be felt by South Africa due to global re-insurers coming under pressure from adverse climate change conditions, terrorism, economic bubbles and collapses. Leading insurers [are those that] regularly reassess the status quo, are prepared to experiment, achieve total command over their data, and are open to investments in new systems [and territories] – they know that staying ahead [of the game] requires constant attention.”

Editor’s thoughts: South Africa’s farming community has been availing of opportunities in Africa for some time now… And although we cannot compare farming with financial services it seems our short and long-term insurers are following the farmers’ example. Do you think local financial advisers could successfully set up shop in neighbouring territories? Please add your comment below, or send it to gareth@fanews.co.za

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