Insurance evolution: Could fortunetellers have predicted it?
The South African economy surged from a Gross Domestic Product (GDP) of R1 386 billion in 2002 to R1 896 billion in 2011, a remarkable increase of R510 billion. Undoubtedly the 2010 Fifa World cup was the pinnacle of this success, the ultimate celebration of the achievements of a fledgling nation and its economic revolution.
However, by 2011 the euphoria had dissipated and the 50.6 million-strong nation, now led by President Jacob Zuma faced a vastly different economic climate following the 2008 financial crisis.
The insurance industry was not in the eye of the storm that decimated financial markets when the United States’ housing bubble burst in 2007. Still, a look at the past 10 years demonstrates the undeniable link between the fortunes of the local industry and its American, and especially, European counterparts. Our industry often takes its cue from Europe.
Insurance participated in the enormous growth that the South African economy experienced. An expanding South African middle class and rising household disposable income increased the demand for financial products. The short-term insurance industry capitalised on this opportunity. It grew its top-line earnings by a remarkable 173% increase.
Premiums for the long-term insurance industry surged by 50% in the same period. There are 79 life insurance licensees, but the market is essentially dominated by a handful of them. There were 62 registered life insurers in 2001, a figure now augmented by 17.
Do Insurance Customers prefer going Direct?
In contrast to the life segment, the smaller short-term segment has seen significant movement among the major players. While Santam and Mutual & Federal (M&F) firmly dominated the short-term segment in 2001, there were already signs of the direct marketers laying threat to the traditional broker models. The rise of OUTsurance, Auto & General and Dial Direct has been remarkable, with the brands acquiring the status of household names.
In 2011, KPMG published “The changing landscape of the long-term insurance industry”, highlighting the emergence of the customer trend of ‘going direct’. The life insurance industry now includes direct players such as OUTsurance, 1life Direct, frank.net and Instant Life.
Ref.: The South African Insurance Survey 2012 – KPMG.co.za