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South Africa’s unique insurance market still has room for growth

28 September 2020 Insurance Institute of South Africa (IISA)

The South African insurance market has undergone remarkable changes over the years with each stage in the evolution presenting opportunities for growth and new business models, says Thokozile Mahlangu, Chief Executive of the Insurance Institute of South Africa (IISA).

IISA is a skill and capacity building hub that promotes the highest professional and ethical standards while fostering innovation to keep the insurance industry on par with market trends.

Bancassurance, new legislation, technological developments, changing customer behaviour as well as cutting edge FinTech innovations by non-financial services firms have had a major impact on the current structure of the local insurance industry.

“Awareness of the mega-trends is just the first step. However, the lack of proper interpretation of these market changes can break an operation,” says Mahlangu.

The IISA chief executive says it is important to have deeper market insights because on the surface the numbers alone can paint a very misleading picture.

“If you measure insurance penetration in South Africa by the percentage of premiums generated - now exceeding R100 billion annually in the short-term insurance sector alone according to a report by the Oxford Business Group - against the country’s gross domestic product, the local industry market penetration is on par with developed economies around the world at more than 20 percent of premiums against GDP,” explains Mahlangu.

“But if you look at individual product penetration such as auto insurance, which the South Africa Insurance Association (SAIA), which represents the interests of the short-term insurance industry, says covers only 35 percent of cars on our roads, then you realise that the market is considerably under-insured.”

New FinTech innovations that have recently come to the market could make it possible for the under-insured, usually those in the low-income brackets, to also enjoy some minimal level of cover.

At the same time, the available technology is also making it possible for higher levels of product customisations.

"Non-financial FinTech competitors are making their presence felt in the industry. They are not only disrupting the industry, but they are also making it more competitive," says Mahlangu.

“These FinTech’s have levelled the playing field by shifting some market power from insurers to customers, making it possible for individuals to monitor and compare products with remarkable ease and at no cost to them.
“These companies are real game changers and will undoubtedly make the industry more competitive, which is always beneficial to the customer and also makes the industry more robust.”

Insurance customers are also actively becoming involved in managing their risks. This reduces their premiums and makes insurance accessible to a larger market, says Mahlangu.

The IISA chief executive says the legislative environment being introduced, such as the “Twin Peaks” which the industry has welcomed, will gradually make it possible for all insurance customers to enjoy improved treatment and protection.

“The industry will take some pain in the short-term as it will need to invest in technology to improve transparency, but in the long-run what benefits policyholders will also be beneficial to the industry.

“The challenge to the industry is developing products that are suitable and accessible to the lower-income segment of the population as well as products that are relevant to the younger generation and the evolving customer needs, this is one clear avenue for growth.”

Quick Polls

QUESTION

Which of the following factors will make the biggest difference to the profitability of a short-term insurance brokerage over the next five years?

ANSWER

Implementing tech-backed distribution platforms
Diversifying into specialist risk management & risk advisory services
Renewing focus on the broker-client relationships
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