Staying Adaptable and Driving Client Resilience: A Key to Thriving in the Face of Change

03 August 2022 Dr Nolwandle Mgoqi at Standard Bank

Over the past two years, in the wake of the Covid-19 pandemic, there have been significant structural changes in the global Insurance industry, driven by the introduction on unprecedented risk factors that will be impossible to ignore going forward.

Pandemics have been elevated to the level of natural disasters and wars, in their impact on people’s lives, their societies and economies. Also, the growing threat of climate change and its impact on the ecosystem will mean businesses have an entirely new compliance framework to adhere to.

The insurance market was also hit hard in 2020, with Deloitte reporting a global decline of 1.3% in premiums, with emerging markets (excluding China, which rose 3.6%) bearing the brunt, with a 2.4% tumble. Advanced markets also fell by 1.8%.
However, positively, the global market rebounded strongly in both 2021 and 2022, with predicted growth rates of 3.3% and 3.9%, respectively.

The impact on commercial lines was noticeable

Pre-pandemic, South Africa had already been struggling with one of its worst recessions as well as rapidly rising unemployment. The onset of the Coronavirus in early 2020 only led to a deepening of the country’s economic crisis, with businesses and clients alike seeking relief through a multitude of channels, including available insurance policies.

Small and medium sized enterprises were also forced to examine their insurance coverage following the public unrest in parts of the country in July 2021. The South African Special Risk Insurance Association (Sasria) stated in February 2022, that the combined claims emanating from the unrest amounted to over R33 billion, with Sasria having to pay out over R17.12 billion in a period of six months.

Overall, the insurance sector saw premium growth slow to approximately 1.2%, compared with more than 4%per year between 2010 and 2020.
However, while there was an increase in business interruption claims and reinsurance costs, the claims ratios of some classes of business, such as motor, improved due to the lockdown and fewer weather-related catastrophes.

Claims ratios in other classes, such as trade credit and consumer credit, increased due to defaults on credit caused by the lockdown. Net claims incurred increased by R1.9bn (4.1%) versus a R2.5bn (3.2%) increase in net earned premiums. This resulted in the claims incurred ratio increasing from 59% in 2019 to 59.5% in 2020.

Insuring the uninsured

Prior to the impact of COVID-19, the insurance market was expected to grow at compound annual growth rates of 7% per annum between 2020 and 2025, nearly twice as fast as North America, over three times that of Europe, and better than Asia’s 6%.
Granted, this is coming from a low base in Africa, the most underserviced region in the world, with insurance penetration in Southern Africa at 2.2%, 1.2% in Francophone Africa 1.3% in North Africa, 1.2% in East Africa and 0.6% in Angola.

Comparatively, South Africa, a highly competitive sector has an insurance penetration of 12.4%, meaning that growth be driven by more than just initial uptake, but value-added services, benefits and even rewards. In fact, one can argue that a market like South Africa should be focusing aggressively on retention of both commercial and consumer clients.

However, I must warn against the thinking that South Africa has reached or is nearing market saturation. Truth is, there is still a huge portion of South Africans who are uninsured, but I don’t believe that traditional insurance product models offer the kind of value that these consumers seek.

A Finscope survey revealed a 4% drop in the uptake of insurance, mainly driven by a decline in insurance from banks and burial societies.

Furthermore, 17.7 million or 42% of adults have funeral cover.

Another deeply concerning statistic is that 8.2 million people have short term insurance cover, a drop from 8.6 million in 2019 Yet, more than 800,000 accidents that occur annually in the country, only to find that most vehicles involved in those accidents are not insured.

According to the Short-Term Insurance Industry in South Africa 2022 report, vehicles are generally not insured due to affordability, people believing they will never be involved in an accident. Some feeling that they only drive short distances or do not drive often, or others not realising how expensive vehicle repair costs are.

It is my belief that insured clients are looking for true differentiation and flexibility. For instance, a policy that reflects the depreciation is a relatively new phenomenon, but common-sense dictates this should have always been available to consumers. As such, insurers are now working hard to offer innovative and flexible policies that reflect usage, lifestyle and individual risk profiles, offering a fairer product, as well as more accessible consumer education.

As insurers find more relevant and attractive value propositions, the South African market could see a rapid growth over the coming years, narrowing the gap of the 24.4 million without life insurance.

Driving client resilience in tough economic times

Not only have we seen clients cancelling subscriptions, but price-sensitive consumers downgrading or shifting across to lower priced brands and products. The resilience of underwriters will depend on their ability to be adept to adaptation, especially as fundamental changes in lifestyle are realised en-masse, providing value in a flexible manner.

For example, one study found that 20% of workers worked from home prior to the Covid-19 outbreak.

By the end of 2020, at the height of the pandemic and widespread lockdowns persisting, a staggering 70% were working from home.

Around 54%, having realised the benefits of telecommuting, have expressed that they would want to work from home. Many companies now offer flexible work options, while some have made work-from-home a permanent feature of working conditions.

This has huge implications for insurers. For one thing, people are spending less time on the roads, and thus drastically reducing their own risk exposure daily.

Furthermore, with fewer vehicles on the road, the collective risk should logically come down. How far that will apply, will be determined by telematics data that will guide the industry on how to design solutions that meet consumer needs.

Returning to normal for insurers is unlikely, and providers will have to seek new ways of navigating this new climate.

For instance, long-term insurers who had provided premium holidays struggled to bring clients back on schedule, with one insurer reporting that only a third of clients who took up the relief had resumed their premiums as per normal again.

The answer may lie in digitisation and the simplification of the client experience.

The digitisation of the insurance Industry

South Africa, having a historically low fixed line penetration, has seen its mobile phone penetration rise rapidly, and over 78% of South Africans of all backgrounds now owning and becoming adept at using smart phones.

These powerful devices could help simplify the customer’s insurance buying journey and take away some anxieties around the mystery of insurance.

This means that digital insurance platforms can help insurers bring new products and services to the market faster.
Insurers can also make better use of social platforms that are growing exponentially to reach clients and consumers, especially those that are we still heavily reliant on website traffic.

Finally, in leveraging the power of artificial intelligence and big data analytics, the industry is poised to become more proficient at predicting customer behaviour and enable better retention and customer service.

Recently, Standard Bank detailed its use of Microsoft’s Business Intelligence (BI) platform to harness data insights and predictive and prescriptive analytics through AI and machine learning.

This allows the bank to better serve customers through more accurate targeting and service delivery.

As a result, the bank used AI and automated machine learning to predict and accurately target customers.
We are at the cusp of a new era of insurance. While we cannot fully predict what the future will bring, we know that the top-down approach the industry has traditionally enjoyed is a thing of the past.

Personalisation, flexibility, value adding and more accurate pricing have to guide the evolution of the industry, especially if we hope to bring on board the more sceptical consumer.

Dr Nolwandle Mgoqi is the Chief Executive of Standard Insurance Limited and Head of Insurance for Standard Bank South Africa.

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