Competition in the short-term insurance sector is as fierce as ever, says Mutual & Federal CEO, Raimund Snyders, as insurance companies battle for business from a fixed number of customers.
“The pie is not growing”, despite the fact that there is significant opportunity to develop insurance products for the black market, Snyders told Moneyweb on Thursday.
“The opportunity sits in the uninsured market. That market cannot afford to have losses, but they do have losses. So their quality of life is actually going backwards,” he commented.
Unfortunately, the current tough economic climate means that the affordability of this market is under even more pressure than it was before.
In any event, short-term insurers have largely failed to deliver affordable, no-frills insurance products for this market.
The short-term insurance industry battles with financial inclusion and access, Santam CEO Lizé Lambrechts said last month, acknowledging that there is “a market out there that we [short-term insurers] are not getting to”.
Industry figures suggest that as many as two thirds of drivers are uninsured.
Economies of scale mean that, in theory, growing the number of insured drivers would bring down the cost of car insurance for everyone since insurers can spread their fixed costs and risk exposure over more policyholders.
Currently, insurers are effectively exposed to uninsured drivers too, since their policyholders are likely to be in car accidents with these drivers, leaving the insurer to foot the repair bill with little chance of recouping costs from the driver without costly legal action.
Buying into the concept of insurance
Together with parent Old Mutual, Mutual & Federal (M&F) is looking at ways to tap into the uninsured market in South Africa and the rest of the continent, Snyders said.
At December 2015, Old Mutual Emerging Markets (OMEM) – which includes Old Mutual Plc’s South Africa and rest of Africa businesses – had 10.7 million customers, representing a significant opportunity for cross-sell on the part of M&F.
The challenge is getting people to see the value of general insurance, Snyders said, remarking that many consumers in the rest of Africa – and in South Africa – simply don’t insure.
M&F will remain within OMEM following the “managed separation” of Old Mutual Plc into four standalone business units.
Reiterating comments made by Old Mutual chief, Bruce Hemphill, Snyders said the separation will bring a focus to each of the group’s businesses that will enable them to more easily access shareholder capital.
Rather than being part of a global financial services business, OMEM will, following the separation, be clearly focused on emerging markets and becoming an “African financial services champion”, Snyders said.
Mutual & Federal has spent seven years investing into new product administration technology so that today there are no more products on its legacy mainframe, Snyders added.
Declining to comment on the amount invested, he said the new system will significantly reduce turnaround times in signing on new customers and paying claims.
He said Mutual & Federal is working on building an online quote system for customers, similar to the one offered by rival Santam’s direct arm, MiWay. MiWay’s platform allows prospective policyholders to enter all relevant details of the items they wish to have insured online, rather than having to do it over the phone.
“Technology is the swing factor between a thriving and struggling business,” Snyders said.