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2016 to be a tough year for insurers

Jul 26 2016 17:11
Lameez Omarjee
Gerdus Dixon, national head of insurance and direc

Gerdus Dixon, national head of insurance and director at KPMG. (Picture supplied).

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Santam Limited [JSE:SNT]

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Johannesburg – The insurance sector showed overall positive financial results for 2015, but it is uncertain that this trend will continue in 2016, according to the KPMG South African Insurance Industry Survey.

Gerdus Dixon, director and national head of insurance at KPMG, shared some of the survey’s findings at the Insurance Institute of South Africa (IISA) Insurance Conference 2016 at Sun City, ahead of its release on Tuesday 26 July.

“We don’t think 2016 will match 2015 performance, for short-term or life insurance,” said Dixon. Unfavourable economic factors, weather related disruptions such as the drought and shrinking disposable household income due to increasing unemployment rates all impacted the industry’s performance.

The short-term insurance industry showed good growth in 2015. However the growth was attributed to rate increases and not necessarily policy increases, explained Omera Naiker, a director at KPMG. The industry reported gross written premiums of R89.1bn in 2015. This is an increase of 11.4% compared to the R80bn written in 2014.

The top four firms’ composition of this share comes to 52.7%. Santam remains the largest insurer with 24%, Mutual and Federal, with 10%, was overtaken by Hollard, with 11%, as the second largest insurer and Outsurance took 7% of the share. Claims ratios managed to improve from 98% in 2014 to 94.4% in 2015, mainly due to benign weather conditions, explained Dixon.

Insurance products remain a “luxury”, the survey found. The average South African consumer became poorer due to the economic environment and rising unemployment. Approximately 60% of cars on the road are uninsured due to the unaffordability of insurance. The full impact of the drought will only become apparent in the 2016 claims statistics.

The long-term insurance industry reported a “satisfactory” year, said Dixon. The asset base increased by 5%, despite market volatility. Total assets for Old Mutual Life Assurance Company came to R619.8bn. For Sanlam Life insurance this was R482.7bn, Liberty Group reported R358.4bn and MMI Group limited reported R373bn.

The economic environment was reflected in consumer behaviour as they are struggling with cashflows, said Dixon. “These effects will be more pronounced in 2016.”

There has been an uptick in permanent health insurance (PHI) claims. This is linked to poor economic conditions.

“The economy is having a severe effect on disposable income, impacting the need for insurance,” said Naiker. Insurance is viewed as a “grudge purchase”, not something prioritised by consumers. In difficult times it is often the first thing to go.

Innovation in the sector

Growth has been a challenge and short-term insurers are working on doing “old things” innovatively, said Dixon. “Innovation is key to making insurance better."

“Innovation is one of the key priorities for insurers,” said Naiker. However, regulation changes need to be understood before companies can move on and focus on introducing innovation. Benefits of innovation include better customer engagement, she said. There are joint ventures between insurers and technology companies, not historically in the insurance industry, coming to the fore explained Dixon.

Digital innovation is mainly present in the short-term insurance side. However, data quality is an issue. “You only get the full benefit of data if the quality is sound,” said Naiker. A lot of work is being done for systems to allow better innovation, she added.

kpmg  |  economy  |  financial services  |  insurance  |  innovation
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