During recent years there has been a significant swift in the way South Africans acquire car and other insurance cover! When I joined the financial services sector in 1999, the direct insurer was still a very young role player in the short term insurance industry. Most people purchased insurance through brokers/ financial advisors and these persons were mostly the same people to assist them with life insurance, investment policies etc.
The Regulatory environment, technology, costs and the need for specialization have been the significant driving forces behind the swift in the short term insurance industry. Much stricter regulations imposed by the Policy Holder Protection Rules and the Financial Advisory and Intermediary Services Act[FAIS] require from the on the advisor to be registered, to undergo continuous training and to become an expert in a specific field rather than being a “Jack of all Trades”.
Direct Insurers and aggregators have benefitted from the advances in technology and perhaps more specific the acceptance by ordinary citizens of these new role players. The Internet has become an acceptable medium to do business and is now trusted by millions to do internet banking, pay bills etc. Years ago even a simple flight to a foreign destination was left in the hands of a travel agent – nowadays many travellers are comfortable researching their destination on the internet, comparing costs from different providers and purchasing their tickets online! It is only logical that many would consider using the same method to purchase car insurance as well!
There has been a significant increase in the volumes of car insurance purchased through direct insurers and recently also the aggregators. But is this placing the broker at risk – will this threaten the existence of the short term insurance broker/ advisor? Having worked as a “Compliance Officer” in the financial services industry I would like to share my own thoughts and my belief that the client will be the ultimate beneficiary of the swifts that have taken place in the insurance industry.
I believe that the dedicated and well –qualified financial advisor is not at risk – the financial advisor at risk will be the opportunist who is not willing to specialize and position himself as someone with “specialized knowledge”. The direct insurers are well positioned to satisfy the needs of the individual and small to mid-size business and can provide affordable premiums. The client with a rather complex portfolio or the large company with a fleet of vehicles would still be searching for the short term insurance advisor. This person would be the experienced, qualified and most probably independent advisor who has built a strong reputation in his field.
To use the analogy of the traveller – the individual or small group might be comfortable doing all their travel arrangements online. The person organizing a school or rugby tour across many different destinations might prefer to use a travel agent. The same could apply to the financial client with a complex portfolio of personal and business assets. He might be willing to pay for the advisor for professional services rendered. As we move from commission earned as a percentage of premium to a service fee based on time spent and services delivered, this will require even more specialization from the financial advisor.