Shrinking disposable income to hit short-term insurers hard

The November FAnews Magazine carried the regular insert from the Association of Professional Financial Planners (LUASA). “Insight” is LUASA’s industry journal and includes a number of articles of interest to financial advisers and other players in the ins

Three broad categories to focus on

Scott proceeded to discuss industry challenges under three main categories. These included: legislation and regulation, transformation and image and reputation. The industry’s success in 2008 and beyond will hinge on how it addresses these broad challenges.

One of the main issues, says Scott, will be “intensified debate around the demarcation between medical schemes and short-term health insurance products.” The “structural relationship between insurers, administration agents, underwriting managers and intermediaries” will also come under the spotlight. Scott believes that remuneration structures may form part of this investigation, thought we believe that 2008 may be a bit early for that debate.

Changes to consumer legislation will also have a significant impact. These include the Protection of Personal Information Bill which will hamper many marketing practices to begin with; but might also affect how insurance companies share claims records. There is also a fear that the insurance industry will fall under the Consumer Protection Act if a review of current legislation determines that the industry is not doing enough to protect consumer rights.

Transformation remains a key challenge

The short-term industry has a long way to go to ensure transformation compliance. The main guidelines regarding transformation are currently outlined in the Financial Sector Charter (FSC) which SAIA has been committed to for a number of years. The big step in 2008 will be to get the FSC gazetted so that its status is uplifted to that of the Broad Based Black Economic Empowerment (BBBEE) Codes of Good Practice.

Scott notes that if the industry fails to achieve this, the short-term industry will, in terms of the law, be governed by the BBBE Codes. This would mean that important intentions in the FSC fall by the wayside. “Access to financial services products to the lower income groups” and “empowerment financing” are not specifically covered in the BBBEE Codes.

Scott notes that: “Once the Charter is gazetted the focus of the industry, and therefore also the SAIA will be to increasingly seek to meet the targets as set by the Charter.

Image goes a long way

We recall a bizarre discussion between the two principle characters in the Jim Tarantino cult classic “Pulp Fiction.” Actors Johan Travolta (Vincent) and Samuel Jackson (Jules) discuss the respective merits of dogs versus pigs. Says Jules: I wouldn’t go so far as to call a dog filthy, but it’s definitely dirty. But dogs have personality and personality goes a long way.”

In the short-term insurance industry you can simply substitute personality for image and reputation. Image and reputation go a long way! To this end, Scott believes that short-term insures should focus on positives in the coming year. “A focus on the good the industry does is needed,” he writes. Efforts in the fight against crime and industry efforts to improve consumer education to lower income consumers deserve mention in this regard.

Unstable weather and shocking motor vehicles stats

FAnews Online believes the short-term insurance industry will increasingly have to deal with a number of other issues too. Top on this list is climate change, with insurance risk on the rise due to weather aberrations linked to global warming. In personal lines, motor vehicle insurance will remain a thorny issue. Vehicle theft and hi-jacking are at disturbing levels and show little sign of slowing in 2008. The likely outcome is that the average consumer will have to pay higher insurance premiums – which will probably just add to the pool of uninsured vehicle on the country’s roads.

We expect that short-term insurers will focus on premium growth, better risk selection and efficient claim management to secure the competitive edge in the next 12 months.

Editor’s thoughts:
Brokers and intermediaries face the usual challenges of compliance with the FAIS Act in 2008. They will also be waiting nervously for further developments on the fee versus commission debate. In the interim, it will be business as usual. What do you think the main issue in short-term insurance in 2008 will be? Add your comment at the end of this article, or send it to gareth@fanews.co.za

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