Johannesburg - The financial results coming from South African insurers are witness to the fact that consumers are struggling to pay their insurance premiums.
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.
The statement comes after a KPMG survey of the insurance industry, which examines insurers' results for the 2008 financial year.
While the short-term insurance market shrank in real terms last year - a worrying statistic, according to Gerdus Dixon, national insurance industry leader at KPMG - the high number of industrial property claims and a motor risk category which remains under pressure accounted for lower profitability in the sector.
The total reported underwriting profit of R1.1bn was about 35% lower than in 2007.
Dixon reckons losses related to industrial property risks are partly because, during the growth period between 2005 and 2007, when corporate players and insurers focused on the marketing of products and services to generate turnover, they neglected risk management. The latter has accounted for large losses in the past two years.
He blamed the conditions of South African roads, inexperienced drivers and expensive vehicle parts for the poor performance of the motor insurance division.
The long-term insurance industry has also experienced challenging times.
Other than that the number of lapsing policies was considerably higher, the consolidated net loss on investments by insurers participating in the survey was R10.8bn.
Realised and unrealised investment losses reached R72.4bn, compared with 2007's profit of R87.9bn.
Steve Meintjes, head of research at Imara SP Reid, says investments could perform better this year, but mainly because things can't get worse.
He says the five biggest life assurers' combined cash outflow of R28.1bn is significantly more than the R7.4bn outflow in 2007. This outflow will remain high this year and improve only in 2010.
KPMG's statement also reads: "For an industry with ambitious growth targets negative cash flow is not good news."
Although it is unlikely that trading conditions will improve this year, many insurers will shift their focus.
"The insurance industry is innovative and has a strong record of trading through the cycles. There is no doubt that the industry will do so again and emerge stronger," Dixon believes.
Meintjes agrees that conditions may improve next year, but believes that a history of innovation will ensure survival.
In the case of short-term insurance, which is much more cyclical in nature, the adverse conditions may get rid of the new players and those that survive again expect healthier premiums.
- Sake24.com
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