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What are the Major Challenges to the Insurance Industry in 2016?

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By Raimund Snyders, CEO, Mutual & Federal

The start of the year has been rocky to say the least. A number of factors have all contributed to the current, somewhat negative overall sentiment, including a dreary global and local economic outlook, increasing consumer pressures, a severe drought which is threatening food security, protest action in the educational sector, increasing regulation and a volatile political landscape. These challenges have, of course, all impacted on both consumers and the insurance sector alike.

Although we are faced with a number of challenges in 2016, I do believe that the industry can take these challenges and turn them into opportunities. Although we see more risks around us, isn’t that where insurance (assurance) is even more critical?

Some thoughts on the present landscape we find ourselves in:

The current economic climate

Consumers and businesses are feeling the financial pinch and are looking for ways to tighten their belts. Unfortunately, both individual consumers and businesses may be driven to decrease their risk management costs, whether by reducing their insurance costs, or cutting down on risk prevention measures.

There is a high level of risk in doing this, as cutting insurance premiums may cause more harm in the long run, especially in the unfortunate instance of being inadequately covered during a crisis. Furthermore, during difficult economic times, insurance fraud and criminal activity tends to increase, making it even more important for consumers and businesses to remain protected through their insurance provision.

The drought and its impact on agriculture

The drought is causing immense strain in the agricultural sector, with many farmers unable to plant and harvest crops and feed livestock. The resultant cost of farming is severely threatening the long-term operation of the farming community, clearly impacting food security.

This, in turn, will impact consumers, with some price increases already reflecting on the shelves at grocery stores and further food price increases expected in the short to medium-term future.

The continued impact of technology

Technology is changing the way the insurance industry conducts business and is also encouraging the implementation of new policies for emerging digital threats such as ransomware. While on the one end, technology developments also means better solutions and service to consumers, it also introduces new risks.

Cybersecurity has become a global issue, with limited data available around cyberattacks. This requires industry members – both global and local – to partner with one another to obtain as much data and insights as possible for the development of accurate pricing and risk analysis. Mutual & Federal already offer some protection to our customers in this regard and we will continue to look for more ways in which we can help our customers manage these risks.

Data is probably the most important asset outside of people in any insurance business today. The ability of technology to assist in obtaining, managing and analysing the wealth of data insurers have access to, will probably be the distinguishing factor between insurers in the future. No surprise then that we dedicate a considerable amount of resources to analysing our customer data so that we are able to tailor our risk solutions and services to specifically suit our customers, as well as harness opportunities brought about by new trends and technologies.

The renewable energy sector

Africa needs to see significant investment in renewable energy solutions to meet required economic growth objectives and, simultaneously, preserve the environment for future generations. Mutual & Federal has placed an emphasis on renewable energy and we are at the forefront of providing insurance cover for local renewable energy projects.

We are one of the local market leaders across Rounds 1-3 of the Solar Energy and Wind Power Projects, which is part of the Integrated Resource Plan announced by the government. Although the construction of renewable energy plants is complex and involves a diversity of risks, we have the technical expertise and resources to tackle the complexity of renewable energy risk requirements.

The importance of brokers

The digital revolution means that consumers are able to conduct their research online and then finalise policies via call centres or online platforms. This is providing the consumer with choice and the ability to finalise insurance policies quickly. However, Mutual & Federal believes that brokers still have a critical role to play, as they have a solid understanding of the industry, as well as specific risk factors that may affect insurance requirements at a later stage. We believe in uncertain times, more advice is required and we largely rely on our brokers to provide this advice to customers.

Brokers are ideally placed to guide the customer to ensure that they are fully covered in the event of a crisis.

The role of regulation

For the past few years, the insurance industry has been affected by regulatory changes taking place in the wider financial services sector. On the plus side, the intentions of the various pieces of regulation have been admirable, ultimately serving the consumer. Regulating market conduct, promoting financial stability, combatting financial crime all adds to a better industry, ultimately protecting consumers. Key to this, however, is to ensure effective enforcement, balancing benefits with the added cost of governance and compliance. In the final analysis, we will all be tested by whether consumers have access to quality advice and affordable solutions offered by sound financial services institutions that are able to compete in a growing economy.

Overall, Mutual & Federal appreciates and understands the difficulty that many individuals and businesses are facing, and we are poised to contribute towards the risk management that helps unlock economic activity. We have both the capacity and the capability to play a meaningful role at a micro-level for our customers and at a macro-level in the insurance industry.

 

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