Statistics point to the undeniable truth

Quinten Matthew

Santam’s claim statistics from the past few years point to the undeniable truth that the risk landscape has rapidly become more hostile. “From abnormally high fire risk across South Africa, to the rise in extreme weather events and the general deterioration of infrastructure – both commercial and personal lines markets are facing greater risks than ever before,” said Quinten Matthew, Executive Head of Specialist Business at Santam.

Global risk trends emerging

According to the Santam Insurance Barometer Report, consumers perceive motor vehicle accidents, burglary and theft as their highest risks. Twenty-three percent of consumers reported they had claims in the last 12 months, with the average value of a claim being R30 228. In terms of the breakdown of claims for the period, motor vehicles accounted for 49% of the claims, cellphones (33%), home contents (16%) and buildings (12%). Over 38% of consumers have uninsured risks mainly portable devices (cellphones, laptops and tablets), home contents (appliances, furniture), jewellery/watches etc. More than 58% of respondents indicated that affordability was the driver for underinsurance. Over 80% stated that insurance provides them with peace of mind. 

Accident damage is the dominant cause of motor losses. Theft and hijacking now account for less than 10% of all motor vehicle claims per year. The same incidents accounted for 30% of total paid claims in the mid-90s. Theft and hijackings are continuously decreasing due to vehicle tracking and security technology. Frequency has decreased, severity has increased. Fifty percent of home content claims are crime related. Burglary and theft claims have declined over the last decade. Home appliances such as dishwashers, dryers and refrigerators are becoming more advanced and expensive to replace. Claims resulting from geyser damage have risen by nearly 20%. 

In terms of commercial lines, businesses perceive theft followed by motor vehicle accidents and fire as their highest risks. Thirty eight percent of corporate/commercial businesses reported they had claims in the last 12 months, with the average value of a claim being R390 287. Claims range between R185 000 (small commercial) to R534 000 (corporates). In terms of the breakdown of claims for the period, motor vehicle claims accounted for 59% of claims, theft (37%), accidental damage (19%), goods in transit (19%), electronic equipment (14%), machinery breakdown (13%), fire/explosion (13%), office contents (13 %) and cellphones (11%). Over 75% stated that insurance provides them peace of mind. 

Theft belongs at the top of the perils list. However, it is not the biggest claims category because theft also happens to be one of the best managed risks in the commercial space. Cybercrime is not yet considered an imminent threat by many organisations. This is hardly surprising since cyber attacks are massively under reported in South Africa. 

The insurer and intermediary

“The nature of insurance in South Africa is changing from risk transference to risk mitigation, and the relationship between the insurer, client and intermediary is evolving as a result,” said Andrew Coutts, Head of Intermediated Business at Santam.

“It is important to acknowledge that market and regulatory changes are fundamentally moving the entire financial services industry to a more outcomes-based model. For insurers, this means adapting the way that our businesses are structured to models that are much more client focused, as opposed to product focused models of the past,” continued Coutts.

The vital role of the intermediary

The intermediary, according to Coutts, is central to making this a reality. Intermediaries add significant value to both the insurer and the customer, and not just as a distribution channel. According to the research findings, the majority (82%) of commercial entities surveyed said they relied on intermediaries for advice based on their knowledge and expertise. Consumers closely echoed this, with 71% stating the same. While getting the best deal was listed as the second leading benefit of using an intermediary by businesses (68%), it ranked eighth among consumers with just 32%. For consumers, understanding their needs came in second with 60%. A further 64% of businesses ranked identifying risk exposure as their third reason for using an intermediary, while 45% of consumers listed explaining products as the third benefit of using an intermediary.

“The intermediary’s value proposition is entrenched not only in the sales process; it is equally embedded in the claims handling process. In fact, advocacy for the client at claims stage is crucial. In the survey, 63% of businesses ranked efficient claims handling as the fourth benefit of an intermediary, while consumers ranked removing claims hassle fifth with 36%,” added Coutts.

“While it could be argued that the intermediary’s role (especially in personal lines) is diminishing as a result of increasing competition from direct insurers, emerging trends in the direct insurance space actually demonstrate the importance of intermediated insurance. In an industry where the rate of customer churn is high, many direct insurers have also recognised the role that intermediaries play in lowering customer churn, leading to some introducing customer liaisons to interact with the customer personally,” said Coutts.

How to reconcile this new approach

“Intermediaries have historically expended the lion’s share of their time servicing clients, but current regulations have them spending up to 70% of their time doing admin compared to just 30% servicing clients. It reduces their capacity to go out and find new clients, as well as their capacity to service more clients effectively to make up for their truncated profit margins,” said Coutts.

“Insurers and intermediaries are now faced with the question of how to reconcile this new approach to reduce risk and premiums whilst still retaining and growing their revenue streams,” added Coutts.

Firstly, Coutts said, we must view risk mitigation as a means of adding value to the customer. Next, we must convince the customer that an insurer and intermediary that remove the need to claim are more valuable than an insurer that just pays claims – this of course is no easy feat.

 “Connectivity and the Internet of Things (IoT) play an increasingly important role in risk prevention. Inventions such as leak detectors on geyser units can identify problems with a unit long before they cause consequential loss. Driver telematics, app-enabled home security, water pressure management and electricity supply management help clients and insurers reduce claim severity and frequency by proactively managing risk. There are benefits to removing the need to claim through better risk management,” added Coutts. 

“Giving the customer access to risk management information and alerts, adding technology and offering a direct line to the insurer and intermediary through online portals and apps would improve customer service while ensuring that the insurer benefits from reduced claims, and the intermediary by maintaining their profit margin. Providing options that help intermediaries function optimally frees them up to properly service existing clients while still being able to go out and win new business, resulting in a win-win for all stakeholders in this relationship,” concluded Coutts.

Writer’s Thoughts:
As mentioned above, intermediaries add significant value to both the insurer and the customer, and not just as a distribution channel. Better risk management strategies, to face the evolving risk landscape, would ensure that the insurer benefits from reduced claims, and the intermediary maintains their profit margin. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za.