Leading insurer backs technology to remain competitive
South Africa’s leading short-term insurer wants to make 2013 the “Year of Insurance”. This was the ambition expressed at the Santam Business Expo, held at The Farm Inn in Pretoria, 6 November 2012. Tobias Doyer, Head of Broker Services at Santam, shared s
It is unfortunate that consumers focus on the perceived shortcomings of insurance based on their narrow experiences rather than on the massive role the industry plays in the overall economy. Insurers generate massive tax revenue for government, sustain entire industries (for example, panel-beaters), provide the capital required to rebuild assets after catastrophes and protect personal balance sheets, to name a few. “In a world without insurance you would have had to save a pot of money to compensate you in the event of a loss,” observed Doyer. Insurers provide this capital far more efficiently than individuals or businesses otherwise could. The bottom line is that the country’s insurers free up capital and keep the wheels of the economy turning.
Market challenges and opportunities
Business has struggled since the 2007/8 global financial crisis. And most economies are still struggling to achieve real growth five years since sub-prime pushed the world into recession. The latest statistics confirm that Spain, Portugal and Greece could drag the entire Euro-zone into another round of recession. So it now seems inevitable that economic uncertainty, borne out by slower economic growth and low interest rates, will persist through 2013 and 2014. Doyer warned that the combination of low interest rates, poor investment returns and increasing competition in the short-term insurance space meant that underwriting margins would come under pressure in the near term. “Tough competition in soft markets means smaller premiums and commissions,” he said.
Insurers have other challenges to contend with. They face a myriad new laws and regulations, for example. Brokers have to worry about Continuous Professional Development and Regulatory Examinations while insurers have their hands full with Solvency Assessment and Management, Treating Customers Fairly and the looming ‘Twin Peaks’ regulatory framework to name a few. Although tighter regulation contributes to the level of professionalism in the industry, compliance comes at a cost. Santam has had to hire many more legal and accounting professionals to ensure their businesses comply, a luxury that many small financial services providers do not have!
Aside from slow growth, pressure on premiums and margins, and the cost of compliance, insurers must take cognisance of various operational difficulties. “The new generation is completing their insurance business on non-traditional platforms,” said Doyer. He also commented on the rising militancy among consumers that is keeping insurers on their toes. One of the major differentiators in the industry will be an insurer’s ability to price risk accurately against a backdrop of rising systemic risk (caused, for instance, by poorly performing municipalities) and catastrophes (due to climate change).
Maximising insurance business in a difficult environment
Despite the many challenges, South Africa’s short-term insurers performed admirably through 2011. Overall they reported a 10% underwriting margin – thanks largely to the direct insurers – off a small 2% improvement in premium (versus 14% in the previous year). Claims as a percentage of premium came in at around 60% and costs of business at 31%. Santam was very happy with its business thanks to a 10% improvement in gross written premium, 6.1% underwriting margin and on-going product diversification. The insurer benefited from a 38% improvement in investment income and boasts an impressive 41% solvency ratio.
Doyer mentioned three ‘big picture’ strategies the group hoped to leverage over the next year or two. The first is its desire to remain the leading general insurer in South Africa and grow this leadership into Africa. The second is to achieve continued growth through both the diversification of product and better management of risk pools. Like its peers Santam will rely increasingly on ‘big data’ and actuarial information to assist with market segmentation and the correct pricing of risk.
A third important strategy is to ensure system efficiency. “There is a constant struggle to keep premiums affordable, or we will lose business in the long term,” said Doyer. The group is busy with three projects to ensure system efficiency over the next three to five years. These include the optimisation of internal processes around contact centres, a new backbone for information technology systems and improved use of technology. Each of these projects should assist the insurer in providing faster, more accurate and appropriate risk pricing.
A critical contribution from brokers
Brokers are an important part of the Santam offering. They are critical in making the insurance transaction simple and affordable and assist the insurer in reducing adverse selection. In addition, brokers help clients to identify risk, reduce the costs associated with insurance product distribution and help to improve and promote competition. In this regard, Santam is proud of the relationships it has built with brokers over the years. “The role of the relationship manager is evolving to ensure that the technology and systems in each broker practice are up to speed,” said Doyer.
He said that Santam’s relationship managers were there to make sure that there is increasing and profitable business growth by assisting brokers to grow their books. “Our mission is still to be your first choice, by building long-term relationships based on trust and delivering product solutions that help you to grow,” he concluded.
Editor’s thoughts: This being a broker ‘business expo’ Santam made little reference to its inroads into the direct insurance space through MiWay… And the insurer, like its traditional insurance peers, is at pains to trumpet the value of broker distribution whenever the opportunity presents. Are you concerned that insurance brokers will lose more ground to direct insurers over coming years, or has the ‘balance’ between broker-assisted and direct business stabilised? Please add your comment below, or send it to [email protected]
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