The changing face of short-term insurance in 2012
-Santam welcomes competition from new players-
The ever competitive industry that is short-term insurance will receive an influx of new players during 2012.
Last year, the Financial Services Board (FSB) awarded one of South Africa’s largest cellphone companies a licence which enables it to sell insurance products which it could underwrite itself, on the cellphones, tablets and laptops it sells. The move is likely to be followed by its competitors.
Car manufacturers are also offering their customers comprehensive car insurance, an offer that traditionally sat with traditional insurance companies.
Times, and the face of the short-term insurance industry, are changing but Santam, South Africa’s largest short-term insurer, says it welcomes the growth in the range of delivery channels in the industry.
“One of the hallmarks of a strong economy (and insurance industry) is healthy competition and, to the extent that new non-traditional players with strong customer networks enter the industry, this expands and improves access to insurance. As such, it must therefore be seen as a good thing. In some instances, especially in the entry level market, access to insurance via a retailer has proved to be a cost-effective channel that has resulted in the expansion of the industry into previously uncovered market segments,” says John Melville, Head of Risk Services at Santam.
“Where non-traditional models have worked best in the past has been where retailers have remained focused on their competitive strengths in customer relationship management within their client bases, and then partnered with experienced insurers to ensure the financial, technical and regulatory integrity of their product offerings,” says Melville. Ultimately it does not make sense for these players to build up expectations that they cannot meet. According to Melville, this inevitably leads to brand damage, dissatisfied customers, and ultimately financial losses.
The outlook for the SA insurance industry in 2012 must be seen in the context of the challenging overall economic circumstances, which are being driven from the international arena. Growth in premium volumes is impacted by the disposable incomes of individuals and the success of businesses. So if incomes remain under pressure and business liquidations/closures increase, there will be less money to spend on insurance and industry premiums will come under pressure.
The underwriting environment in SA has been relatively benign over the last few years with claims ratios (claims divided by premiums) at lower levels than their longer-term averages. According to Melville, this has resulted in increased price competition and to what is referred to as a ‘soft rates’ environment (that is an environment where it has been easier to negotiate lower premium rates).
The weakening of the exchange rate in 2011 will however result in more expensive car parts and other imported goods in 2012 and, to the extent that premium rate increases cannot be achieved to offset such additional costs, claims ratios can be expected to increase. “Driven by competition and cost pressures, we expect that overall industry claims ratios will be slightly higher in 2012,” says Melville
However, industry players that respond with the right strategies in this environment will still be able to achieve good results. “While there are economic headwinds, there are still opportunities to improve customer offerings and win customers from players that have underinvested in the capabilities necessary to deliver quality insurance reliably,” concludes Melville.
In challenging economic circumstances, it becomes even more important for policyholders and their intermediaries to ensure that their insurers deliver on their promises, as the consequences of failed insurance become even more painful.
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