Personal lines brokers battling for survival
If you want to know what South Africa’s regulators are planning for the domestic financial services industry you could do worse than to study recent developments in Australia and the United Kingdom. And – given that our regulators are a couple of years be
The article suggests the short-term personal lines brokers in that country have been pushed to the brink of extinction due to excessive regulation and ruthless competition from direct insurers. As a result the Australian government’s latest plan to introduce measures to make flood insurance simpler will come unglued. “A search of the National Insurance Broker Association directory service revealed just 43 brokers Australia-wide listed for home and contents insurance, a figure that reduces to 17 if multiple branches are removed,” observes the website... It quotes a number of brokers who dismiss personal lines broking as labour intensive, complicated and simply not worth the effort! South Africa’s financial services regulator and both short-term insurance and intermediary representative bodies should take care that South Africa’s short-term brokers do not suffer a similar fate.
Lessons from the international stage
The “peek into the future” provided by the Australian and UK markets is just one source of insurance intelligence. Other tools that assist insurers and intermediaries with their long-term planning are international surveys such as the latest Swiss RE sigma report: World Insurance in 2011. The latest report suggests that both long and short-term insurers are still struggling in the wake of the 2008 financial crisis. Swiss RE’s assessment of 147 insurance markets (represnting 99% of global insurance premium) reflects a decline in overall insurance premiums of 0.8% (in real terms) last year. The survey also showed that global non-life insurers achieved a “soft” 1.9% premium improvement over the same period.
There is wide disparity between developed and emerging market insurance performances. “Non-life premium growth in the advanced markets has been supported by gradual rate increases in personal lines of business and in regions affected by large natural catastrophes,” says sigma co-author Daniel Staib. Despite this, the so-called advanced regions only managed 0.5% premium growth. This contrasts strongly with the more robust emerging market segment – including South Africa – which achieved non-life premium growth of 8.6%! The sigma report concludes that capital and solvency remain “solid” among non-life insurers despite a record year for natural catastrophe events.
Life insurers adapt to the “new normal”
Investment analysts and economists have been warning investors of “new normal” returns since the 2008/9 global recession. Major life insurance markets such as the US and Japan have mirrored the sluggish economic recovery, with slow but steady increases last year. This was not enough, however, to prevent global life premiums decreasing by 2.7% (in real terms) through 2011. “Tighter regulations on distribution of insurance products in China and India led to an overall decline in emerging life premiums,” notes the report. “Regions, such as Latin America and the Middle East, showed continuing growth.”
South African life insurers outperformed their BRIC peers by some margin through 2011 after tight regulation of bancassurance distribution in China and India contributed to a 5.1% real decline in life premiums in the emerging market bloc. Local insurers will have to monitor the pending micro-insurance regulation closely to avoid suffering a similar fate.
The sigma report is upbeat over prospects for 2012. “Last year was not a great one for premium growth, but 2012 should be a lot better as rates continue to improve in non-life markets and India and China return to robust growth in life markets,” says Swiss Re Chief Economist Kurt Karl. He expects emerging markets to lift the overall insurance performance through 2012.
Waiting for a profit “boom”
Will global insurers make money this year? “The profitability of the life insurance industry has stabilised, but remains low,” observes Staib. He said that low interest rates were a major issue for life insurers as they affected investment returns and eroded the profitability of guarantee products. Swiss RE expects a revival in life businesses in China and India to uplift life premiums across the board. “Last year was not a great one for premium growth, but 2012 should be a lot better as rates continue to improve in non-life markets and India and China return to robust growth in life markets,” concludes Karl.
The good news is that non-life insurers can look forward to “robust growth in the emerging markets.” South African insurers in both the life and short-term space remain (for the most part) profitable, but face similar challenges to their global peers. Poor investment returns, low interest rates and the impact of post-recession financial regulation are but a few of the challenges that must be overcome.
Editor’s thoughts: South Africa boasts the world’s 17th largest overall insurance premium at an impressive $52.476 billion ($41.364 billion being life premium) and our overall premium per capita comes in at $1037 per annum. But our overall premium expressed as a percentage of GDP is already at 12.9%, equal to that in the UK and double the rate in New Zealand and Australia. Do you think, given the huge income inequalities in South Africa, that insurers will be able to increase our 12.9% insurance penetration rate going forward? Add your comment below, or send it to gareth@fanews.co.za
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