Looming ‘bank-style’ legislation that could impose capital adequacy and other stringent requirements on the local insurance industry could have far-reaching consequences for an industry that is already under pressure, says Deloitte.

The proposed risk based capital regulation Solvency Assessment and Management (SAM), could see smaller companies, unable to meet capital adequacy reserve requirements, seeking alliances or becoming acquisition targets for the ‘Tier 1’ companies in the South African insurance industry, says Yuresh Maharaj, Insurance Industry Country Leader at Deloitte.

The results of the recent SAM Quantitative Impact Study (SA QIS1) show that 50% of insurers participating in the study had lower surpluses after capital requirements compared to the current regulations, and close to 20% of companies did not meet the SA QIS1 capital requirements.

The pending legislative change comes at a time when the South African insurance industry is under increasing pressure, caused primarily by the poor prevailing economic conditions that are placing pressure on margins on what many consumers already regard as a ‘grudge’ purchase.

“South African Insurers are working under increasing pressure. They must increase the volumes of their business and retain existing customers. Simultaneously, they must also look internally to reduce costs and maximize revenues. Achieving revenue growth requires that they look to revamping existing products, introducing new niche products and identifying emerging markets into which they can expand,” says Maharaj.

While they undertake introspective exercises, all have to face a market reality where competition for market share is becoming more intense. Traditional insurers, direct insurers, banks and more recently retailers are all looking to technology to reduce their cost base whilst competing for more market share.

“Taking advantage is the educated consumer who now has more insurance options than ever before. Making product and service provider even easier is the availability of Internet search engines that offer comparative quotes almost instantly at any time that suits the buyer.

“Since late 2011, the situation has become even more competitive as banks have begun renewed marketing of their ‘bankassurance’ products. They have the advantage of access to their existing customer base and accessible distribution networks. They are pressing these significant advantages home by offering streamlined, more attractive products than they have in the past.”

Technologies, such as mobile solutions and telematics, also offer cost-effective future options for insurers.

“Telematics, which offers opportunities for insurers to monitor customer patterns through the application of technologies like monitoring systems in cars, offer possibilities but also risks that have to be carefully managed.

“The major concern with this approach to insurance is that, unlike other forms of cover, they are new and therefore have to be actuarially assessed from scratch to assess their viability.

“Although trading conditions may be tough, there are options for the insurance industry. Some of these will emerge from the life and annuity side as there is a large uninsured and underinsured population to be targeted.

“What is required, however, are the right products, niche marketing messages and delivery systems capable of bringing these prospects into the fold,” says Maharaj.

Contact:
Zintle Letlaka
Magna Carta (PR)
+27(0) 11 784-2598
zintle@magna-carta.co.za


Lana-Jane Pike
External Communication
Deloitte & Touche
+27 (0)11 209-6214
lpike@deloitte.co.za