Finding a place in this world

Rowan Burger, Managing Executive: Large Corporate Segment at MMI Holdings

While we sit and wait for the Financial Services Board to implement its extensive regulatory reform programme, we have seen very little news from insurers on how the new regulatory landscape will affect them and the industry as a whole.

Perhaps it’s because insurers would like to see what is actually implemented before they make this call. But if discretion (or caution) is the better part of valour, some may feel that the best defence is an effective offense. Insurers who try to paint certain scenarios can easily adapt into them; and rather be proactive than reactive.

A place in this world

It will be key for insurers to find their place in this new world, and to do so quickly as there is the added game changer of technology which is changing the industry at a rapid pace.

Going back to the issue of regulatory change; Rowan Burger, Managing Executive: Large Corporate Segment at MMI Holdings, says that regulatory change will have a significant impact on the industry, as well as on society.

“While we are not 100% sure on what the industry will look like once regulatory reform has been implemented in full, we can try and paint a few scenarios so that we are not caught off guard. In our view, the consequences of regulatory reform will be that the cost of financial services will increase, the distinction between retail and institutional arrangements will need to be removed, there will be more market consolidation and financial advice will become the preserve of the wealthy,” says Burger.

One of the major pieces of legislation that will define this will be the Retail Distribution Review (RDR), which will put tight controls within the industry on how products are structured, offered, and governed through the value chain. A major RDR talking point has been the proposed classification of advisers into tied, multi-tied or independent.

While this may be a good course to follow, Burger questions the future of the independent player. “One of the corner stones of financial services is to provide efficient, high quality services to as many South Africans as possible. But to provide this advise, the industry may lose certain independent players. This is unfortunate as they play a vital role in the industry,” says Burger.

Paying homage

In this new world, the customer will become even more important than they were in the past. Most certainly, they will have more protection and a safe haven to run to should things go wrong.

There is also another factor that is redefining the customer and reshaping their outlook on the industry. Burger points out that in the new market, clients are becoming more diverse, more demanding where they expect flexibility and personalisation as an inherent factor in insurance products and more sophisticated where the emerging middle class want more exposure to financial services and are partially educated on products through the internet. They are also becoming more hedonistic where every interaction with the adviser becomes all about them.

Burger mentioned that research has reminded them of the importance of a clear split when it comes to clients and their income – it has to be distinct and clear cut..

Two distinct groups were identified by Momentum. The one group earn an average income of around R430 000 per household per year and are generally happy with their lot in life. However, the unforeseen would really make an impact in their life and family is seen as their top priority. They lead simple, modest lives and work for them is simply a means to an end. Their approach to financial services products is that the adviser needs to convince them that they are in need of the product.

The other group earn an average income of around R570 000 per household per year and they expect a very high level of service from advisers. Even though this group Earns more than the other group, there is limited disposable income for luxuries. This group is highly driven and highly motivated and they are generally content, but have high expectations for their children. Their approach to financial services products is that advisers need to educate them on the product where they will make an informed decision.

Necessary segmentation

This is a pretty high level of segmentation and requires specific strategies from advisers who are faced with two distinct markets. But Burger believes segmentation needs to go deeper.

“Advisers need to understand spending behaviour. There is much more to clients than salary, age and gender. Needs analysis calculators need to be meaningful and they have to present the whole picture to be understood. As product providers, we should also be more deliberate in building appropriate default options while considering broader issues,” says Burger.

With appropriate levels of segmentation, product suppliers can understand benefit needs at a more homogeneous level, they can construct the appropriate amount of self-selection and they can have a better understanding on how to communicate benefit messages which would enable self-service. In way, Burger feels that there will be better engagement with the client across the product value chain.

Editor’s Thoughts:
The exact role segmentation will play on the market remains to be seen. However, it is an effective way for advisers to know what message to present to each group, which would go a long way to catering for their specific needs. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.