A business environment such as this generally pushes premiums lower. In an already price-sensitive market, it’s an easy win to gain market share, but at the expense of margin squeeze and a race to the bottom. Clearly, this cannot continue in the long run and risks damaging the short-term insurance industry. Worse, were this to endure for a lengthy period, the likely outcome would be further industry consolidation and less market competition.
On the political front, South Africa was exposed to policy uncertainty and two nail-biting rounds of credit rating pronouncements, which thankfully left South Africa’s sovereign credit ratings unchanged, although with a negative outlook. Just the tension and uncertainty in the lead-up to the announcements is enough to suppress the economy and temper performance.
The dearth of growth potential in the insurance sector has meant that innovators have been able to gain an edge. The creation of new products and new insurance solutions has led the path to new opportunities. For example, with very low penetration in the vehicle sector, insurers who devise products specific to the needs of the uninsured will be able to see growth.
And there is certainly plenty of opportunity beckoning here: in 2013, the Automobile Association estimated that a massive 65% of vehicles on the road did not have insurance and in 2015 an estimated 10m vehicles were uninsured. But the lack of insurance extends well beyond the vehicle sector. At whatever level one is operating, if one has assets and one risks losing them, they need protection. In fact, this is even more relevant at lower levels as the loss can have a far greater proportional impact than if one is at a higher level. Worse, people living on the edge of society are exposed to a far higher risk of loss from natural disasters such as fires and floods.
This legacy of low-insurance penetration offers significant potential to an industry under pressure, but critical for success will be the industry’s ability to adequately serve the so-called bottom of the pyramid cost effectively and efficiently.
While attempts to serve this market have been made in the past, distribution has proven to be a challenge. Technology will be able to assist, particularly with the rapid progress being made in this field. It is highly likely that a tech platform will be able to offer distribution to the uninsured while also enabling the products to meet their needs. Clearly the future will be mobile access as smart phone penetration rises in Africa – it is forecasted to reach 80% by 2020 – and data costs will come down.
Innovation will drive our future and, importantly, it can occur anywhere and anyhow. Some of the remarkable developments that we have witnessed recently involve the internet of things (IoT), billed as the fourth industrial revolution. IoT is the situation where sensors and chips are being embedded in many devices and objects. These devices are gaining the ability to communicate using the internet and this phenomenon can be utilised to manage them and protect them.
From an insurance perspective, we can see this technology as a way of managing risk, mitigating it and lowering the cost of insurance, to the ultimate benefit of the insured. Businesses and individuals can use the information generated to strengthen security and manage risk as well as manage change that comes with a dynamic environment. This will enable keener pricing and improved insurance products.
