The 2008 Insurance Survey reveals the significant impact of the credit crunch on the insurance industry in South Africa. A KPMG survey of the insurance industry examined the financial results of insurers for the 2008 financial year. The survey confirms interesting industry trend and identifies specific risks to the industry.
According to a KPMG statement, the pressure on consumers’ ability to afford insurance is the result of having less disposable income as well as the lower employment rate. It is important to note that price has become a very important consideration for short term insurance clients as they struggle to pay their insurance premiums!
The Short Term Insurance market shrank in real terms last year as the overall underwriting profitability of the industry decreased.
But what does the Survey reveal about car insurance?
The deterioration in the loss ratio has been attributed to 2 factors – unusually large and frequent commercial fire claims and a motor risk category which remains under pressure. It is important to note that road safety – or the lack thereof – also receives an important mention.
Industry experts blamed the conditions of South African roads, inexperienced drivers and expensive vehicle parts for the poor performance of the motor insurance division. The poor performance of motor portfolios remains a concern for the car insurance industry and 2008 has seen substantial premium rate adjustments as a corrective measure. Insurers have also moved closer to the motor repair procurement process in an effort to better manage the cost of claims.
What are the important trends in selling short term & car insurance?
- The survey reveals that the larger insurers have done less business through the underperforming group schemes and broker businesses.
- Most of the larger insurers are struggling to compete with the direct insurers for personal lines business.
- The direct channel has continued to grow but the churn rate of policies in this extremely price sensitive part of the market remains a challenge.
- Two significant insurance providers entered the fray, namely MiWay and Absa idirect.
- The impact made by these new role players on the overall market will become apparent in the next two years as they build critical mass.
- A significant proportion of industry expenses relates to information technology improvements with insurers enhancing their systems to facilitate better client service and extract more data for purposes of capital management and pricing.
The survey concludes that the insurance industry is innovative with a strong record of trading through the cycles. It is expected that the industry will do so again and emerge stronger. Conditions may improve in 2010 and the history of innovation will ensure survival.
[We will continue to further develop the car insurance blog with an analysis of those aspects of car insurance that will assist our car owners to make informed and safe decisions!!]