Insurers need to adapt to many challenges to stay relevant.
Short Term Insurers are currently being challenged with many different issues which they have not had to deal with before, they have had to adapt many of the practices of the past to make sure they are still able to operate and stay relevant, never mind gain market share and thrive. There are many large issues that keep insurers up at night so that they are able to retain their regulatory licenses, maintain profitability and even grow. This article will consider a few of these issues, with the main themes being technological challenges, environmental challenges and one that is extremely topical at the moment is the regulatory changes which have dramatically altered the playing fields for all participants within the value chain, whether they are direct insurers, insurers selling through intermediaries or the intermediaries themselves.
With respect to the environmental issues, one just needs to look at how many catastrophes there have been not only in South Africa over the last five years but worldwide. Just this year the USA had two of the strongest storms in many years which caused record insurance losses, for example the hurricane that brushed the coast of Florida, not to mention the damages that were incurred in the Caribbean islands of St Martin and others. One cannot underwrite for these kind of weather catastrophes, such as in the UK which had record snow in March which was unheard of. Strategies, reinsurance programmes and underwriting must be re-looked at to deal with these very real dangers. Insurers, along with Government are the main go-to people to assist when these weather tragedies strike.
The second issue that insurers are constantly monitoring is here technology can very quickly shake up the entire industry and almost make the existing businesses irrelevant if one does not lead or at least keep up. Google, Uber, the new rental hubs of bicycles in China, artificial intelligence, together with application technology is changing the way people do business in a very short space of time. There are already innovative insurers out there who in the personal lines space are transacting only on applications and are integrated with property companies as well as other data companies to be able to have access to the most scientific data within a very short space of time. Clients can have their policies issued and claims paid literally within minutes at any time of the day or night. It will not be long that if an insurer is not at least able to compete in this space that they may lose massive market share.
Finally regulation in the insurance space continues to be rolled out at a high rate. 2017 was almost a perfect storm with the introduction of the amendment to the binder regulations, the new Policy Holder Protection Rules, the new Insurance Act, the FAIS fit and proper rules and we are now seeing the new Prudential standards that will need to be commented on. The third party cell captive paper is also being eagerly anticipated and all of these items of new legislation are forcing insurers to change certain elements within their operations to make sure they are compliant. The regulator is getting tough with Insurers that breach legislation and with the massive changes coming in so quickly all insurers are having to work furiously to get systems up to speed. As if that was not enough they also now have the increase in the vat rate in South Africa to consider as well.
by Danny Joffe : Chairman of Klapton’s Ethics, Nominations & Remuneration Committee
Photo under Creative commons licence CC0 1.0 Universal (CC0 1.0)