SA’s life insurance sector: where do the opportunities lie for 2022 and beyond?
When it comes to the life insurance sector, South Africa has one of the most competitive insurance markets in the world, with a mature, established industry that serves middle- and upper-income clients, and an emerging sector delivering innovative solutions to previously unserved clients in the lower-income markets. The insurance industry is a major contributor to the soundness and stability of the South African economy and, as the recent KPMG South African Insurance Industry Survey has revealed, the sector is well capitalised, resilient, adaptable, and innovative.
The evolution of the life insurance industry over the past decade
Agility has been a common theme of the SA life insurance industry since BrightRock entered the market 11 years ago. There have been changes, for example, in financial regulations, technology, distribution channels, and consumer behaviour.
Financial regulations in South Africa change constantly, as our industry is informed by the frequent changes in international insurance markets. These regulatory changes seek to improve the sustainability, transparency, and conduct of large financial services institutions to protect consumers. In addition to responding to the impact of the pandemic, several regulatory and technology-led changes are changing the insurance landscape. These include the new IFRS 17 standard and the Twin Peaks model for financial regulation.
The SA life insurance sector has also had to keep up with the global shift to digital channels, which has affected how both individuals and business behave. With this shift, there are now greater expectations from customers in terms of service delivery. While we are seeing several insurers starting to digitise customer journeys, significant opportunities still exist to accelerate this in many markets. To meet the rising demand for digital solutions, Insurtechs, which are technology-led companies in the insurance sector that aim to provide coverage to a more digitally savvy customer base, have been quick to step in.
Because consumers have become more digitally savvy, and because there has been a transition from a sales to advice mindset, as well as improved market conduct regulations, insurance distribution channels have also evolved. Brokers and agents remain the most prominent channels, although direct sales and bancassurance - arrangements between a bank and an insurance company allowing the insurance company to sell its products to the bank's client base – have increased their share. Since our market entry, we have seen a vast increase in the number of tied-adviser and direct-to-consumer channels in the market, alongside the continued growth of the Independent Financial Advisor (IFA) market, with a notable increase in the professionalism, advice focus, and value-add of intermediated channels.
There have also been significant changes to consumer behaviour over the past decade as consumers have become more familiar with the digital journey in purchasing services and products online. Technology is also an enabler of personalisation and customisation. Consumers are much more aware and demanding, preferring personalised insurance covers instead of the one-size-fits-all products currently available.
Predictions for the life insurance industry over the next decade
Bearing in mind the recent evolution we have seen in the life insurance industry, here are five future trends we at BrightRock believe will inform the direction of the sector in the next few years:
Putting strategies in place to tackle the next challenge that comes along: Our industry has definitely risen to the unprecedented situation that the pandemic has created. We have all stepped up to ensure our clients remained well protected during a time when they needed us the most. We are proud of how our industry has been agile enough to adapt to the changes brought on by COVID-19 and are looking forward to seeing what the next 10 years hold for us.
Accessibility to long-term insurance for more people: As an industry, the next 10 years presents us with an opportunity to ensure that we make long-term insurance more accessible to more people. This means restructuring life policies to help people better understand what their cover is for. It also means cutting out unnecessary waste, to ensure people pay only for what they need.
Demystified products: The next five to 10 years is an opportunity for us to work harder at demystifying our products for more South Africans, and clearly communicate the benefits that long-term insurance can bring to families and individuals. One of the lessons from this pandemic should be the importance of long-term policies, as these make provision for times of financial hardship, such as a debilitating illness or the death of a breadwinner.
A huge focus on financial literacy and education: Financial education is one of the areas that will be a key emphasis for the industry for the next few years. Financial education increases consumers’ financial capability and so contributes to the demand for financial products, transparency, and fair market conduct. Financial literacy is also a key factor in ensuring sustainable and effective financial inclusion.
Treating customers fairly: A big focus for the industry in the coming years will be how financial institutions treat their customers. The past decade has seen the introduction of various pieces of legislation to regulate financial institutions' conduct and strengthen oversight of how the financial services industry treats its customers.
The life insurance industry has always been an exciting, ever-evolving sector and has brought many changes over the past few years that have served both the industry and consumers well. We at BrightRock are looking forward to playing an important role in the future of our sector, and are confident that our dynamic, needs-matched approach, which matches the cover to the shape and trajectory of the underlying financial needs, will continue to lead the way in revolutionising the industry.