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The Telesales and Internet stranglehold

02 February 2007 Gareth Stokes

You can buy almost anything on the Internet these days. The traditional consumer websites offering items like CDs, DVDs and books are now mere specks in a sea of Internet retail real estate. Direct insurance companies have been quick to get in on the a

When it comes to selling goods and services over the Internet, South Africa lags the rest of the Western world by some margin. The blame falls squarely on the telecommunications industry which has failed to provide efficient or cost effective Internet solutions to local consumers.

But things are finally changing. More South Africans consumers can boast access to broadband services than ever before. Speed and cost remain an issue - but at least the online community is reaching a critical mass. What does this mean for the insurance industry?

The short-term sales arena is changing

Short-term insurance products have traditionally been sold through brokers and intermediaries. Today consumers are able to purchase insurance directly from the insurer. Direct insurance is typically sold by way of telemarketing (telesales) or the Internet.

This category of insurance has gained in popularity in recent years and now accounts for as much as 20% of short-term insurance sales in South Africa.

The market share held by direct insurers is likely to grow in line with the growth in number of consumers with Internet access. Direct insurers in the UK already account for as much as 60% of insurance policies sold. If the South African short-term insurance industry follows this trend, direct insurers such as Dial Direct, OUTsurance and Auto & General will be in the pound seats.

A PriceWaterhouseCoopers (PWC) report titled "Emerging Trends and Strategic Issues in South African Insurance 2006" suggests that local short-term insurers are already aware of the changing environment.

When questioned about their expectations for the next three years the short-term insurers felt that the number of employees (+21%), number of policyholders (+37.63%) and value of premiums (+42.56%) would all increase.

The glaring exception was in their estimates of the number of brokers operating in the short-term industry. Here the consensus was for a decrease of around 1,500 brokers from 22,555 in 2006 to 21,055 in 2009.

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