GWII CPD session: Emerging risks and trends present a huge opportunity

On the topic of Emerging risks and trends, Gauteng Women In Insurance (GWII) hosted a Continuous Professional Development (CPD) session on 29 September, proudly sponsored by Old Mutual Insure.

Speaker Jerry Anthonyrajah, Executive: Strategy and Blue Sky at Old Mutual Insure spoke about the emerging risks and trends and how they present a huge opportunity for the insurance industry as it spawns innovation by offsetting risk.

Here are the key trends, according to Anthonyrajah.

Consumer behaviour

There is consistent increases in average asset scores for Black Africans and other smaller provinces – significantly different from the OMI retail customer base. The medium-term expectations are that P&C premiums in South Africa will grow 76% by 2030, at over 4% CAGR in major cities. Personal lines will grow significantly, driven by growth of the middle class. Gauteng and Western Cape will continue to be key market opportunities. However, other provinces have fast increased asset scores and will present further growth opportunities.

Customer expectations are evolving: there is an increased need for convenience, transparency, personalisation and value. Customers are becoming more digitally engaged (e.g. online banking, shopping, ordering food etc.). An insurer’s competitive advantage can be derived from offering a superior digital customer experience (e.g. from simple online product sign up, easy communication with your insurer via apps, simplified claims submission and processing etc.).

Transparency is a priority. Honesty is key, resulting in consumer trust. Insurers and brokers need to ensure that consumers are properly informed on the cover they have and not to be told only at claims stage that specific perils are not covered. Consumers are price sensitive. Consumers can easily shop around for a better price due to internet aggregators. Operationally efficient businesses are better placed to compete on price especially for the good risks (e.g. offerings to claim free clients).

The demand for user-based insurance (UBI) and shared value models (Uber, AirbnB) is rapidly increasing. Customers expect convenience, flexibility, transparency, trust, fair cheaper premiums and improved customer safety. Insurers benefit from UBI through - driver data and customer behaviors, improved pricing, risk selection and analytics, proactive claims prevention, embed UBI into CRM, personalised customer solutions, improved customer experience and reduced fraud.

Enabling technology in also on the rise, resulting in increasing computer power in new vehicles, seamless integration via API technologies, smart home technology adoption, Machine 2 Machine technology increasing interconnectedness and real time data exchange.

Other trends include the contraction of the auto insurance market in the longer term, due to self-driving vehicles (own damage claims make up 55% of premiums - potential risk transfer to automakers in event of self-driving accident, regulations regarding driverless vehicles are not yet clear, etc).

Customers are also preferring to have all financial products with one provider due to better pricing and compelling rewards. Discovery, for example, has managed to embed all offerings with a single customer portal, in addition to world rated rewards program. Banks, telecoms and other non-traditional players are also tapping into their portfolios to grow bancassurance models.

New (product) risks are emerging

New (product) risks are emerging. Some product considerations - diversification is becoming more important (e.g. pet insurance); cyber risks now present one of the biggest risks to business survival (cybercrime incidents are on the rise in South Africa and an opportunity exists for insurers to offer comprehensive cyber products that include both cyber threat mitigation and insurance cover against cyber losses); there is the rise of microinsurance (life and non-life insurance products can be written on the same license and cell and there are relaxed barriers for entry into insurance industry); and climate is changing the insurance risk landscape (in the long run insurers need to help policyholders become more resilient to natural disasters. Reinsurance cover for catastrophes is becoming more expensive and insurers should ensure they are adequately priced for weather risks).

Omnichannel experiences

The way insurance is bought and sold will continue to evolve. There is increased demand for omnichannel experiences. The demand for omnichannel experiences will be even greater as the millennial generation demand more insurance products: 30% of interactions happen digitally in developed markets.

More digital and direct players are entering the South African insurance landscape; digitally engaged customers make informed decisions and enhance their buying experience through research, reviews and ease of use. Changing customer behavior and preferences is impacting the insurance industry and its distribution models. This is fast tracking the entry of digital players.

There is a rise of hybrid/embedded channels: more customers are open to buying insurance from non-traditional players. A cell model is emerging as a driver for value, creating partnerships and channel innovation.

Digitally ready direct players increased share of new business during the pandemic. The direct market is expected to continue its growth – contributing to 70% of the personal lines market by 2030. Commercial Lines has started to follow this trend. To sustain growth, it is imperative that alternative channels be used to capture this opportunity.

Intermediary consolidation

The brokerage space in South Africa remains a highly fragmented market. Brokers continue to remain under pressure due to challenges in addressing regulatory challenges (major legislative and regulatory changes resulting from the Retail Distribution Review are driving cost of compliance and revenue compression, creating consolidation pressures), transformation (recognition of commissions under B-BBEE preferential procurement from 2020 and the general lack of transformation in the sector is creating risks to growth and customer retention), and evolving customer behaviours (customers of the 21st century are price sensitive, consume collaboratively and prioritise convenience, and brokers need to pivot to meet these demands).

The sales-focused nature of smaller brokerages and the emergence of accessible Insurtech create operational savings and efficiency opportunities, but also raise the risk of disintermediation. There are opportunities to consolidate small and medium sized brokers under a black-owned entity to leverage synergies.

The swing to a ‘hard market’ in the underwriting cycle means that broker premium growth will likely be restricted in the short-term

Merger and Acquisition (M&A) activity also continues and the digitisation of advice.

Digitisation and innovation

In terms of digitisation and innovation, digital insurers are starting to reach a different S-curve. There are digital and data-driven opportunities (agile marketing, digital experiences, digitally enabled "adviser of the future", pricing/UW based on advanced analytics, digital end to end customer onboarding processes, frictionless underwriting and enrolment process – towards customers and distribution partners, digital end to end claims with strong underlying analytics, omni-channel servicing capability, “next best product to buy" cross-sell capability and predictive analytics capability for ongoing customer engagement and lapse reduction).

Insurers can capture significant value by digitising their largest processes (top 20-30 end-to-end processes can account for up to 40% of costs and 80-90% of customer activity). Insurtechs are right there to collaborate.

There are clear opportunities to partner (Big Data, machine learning, software as a service, usage-based insurance, etc). Insurtechs are redefining approaches to key parts of the value chain and big players in South Africa are investing and partnering with Insurtech start-ups in order to remain competitive.

Key trends summary

In short, Anthonyrajah said market trends point to changing consumer behaviours, new (products) risks, channel shifts, intermediary consolidation and digitisation and innovation.

Jerry Anthonyrajah
Executive: Strategy and Blue Sky
Old Mutual Insure