After a strained few years, consumers are adapting to a new normal, but are also having to deal with increasing pressure on household incomes. Despite these challenges, the short-term insurance industry continues to grow, innovate and prove its tremendous value to clients. As one of the leading insurers in South Africa and as a result of our robust and ever-growing data ecosystem, Discovery Insure strives to be ahead of the curve in identifying industry trends that are shaping the world of insurance.
According to the Mission Asset Fund, insurance is the second most important financial need. It provides security in the face of uncertainty – something that’s even more important in times of financial pressure and increased risk where insurance is more relevant than ever. This is also when advisors play a crucial role in keeping up to date with emerging trends and partnering with insurers who offer products that can help protect their clients’ interests. Looking to the future landscape of the industry, we have identified three key trends that we feel are important for insurers and financial advisers to focus on.
Offering innovative ways to save money
This is yet another opportunity to illustrate the power of the shared-value Insurance model. By incentivising good behaviour in their clients, an insurer can control the level of risk that they are exposed to, thereby reducing their claim costs. This cost saving can then be passed on to the clients through various rewards or premium reductions, further incentivising responsible risk management.
Because insurers have substantial negotiating power and buying strength, they are able to form strong partnerships with other companies. As a result, the rewards they offer their clients can often come in the form of discounts that enable savings on non-insurance costs. For example, the discounts offered to Discovery Insure clients on tyre and car seat purchases, as well as reduced rates on car servicing and maintenance.
Clients’ risks have changed
While traditional risks are still relevant, the risks that clients face are evolving as the world changes at an exponential rate. Recent examples of these risk evolutions are in the aspects of inflation and weather patterns.
The COVID-19 pandemic has had a knock-on effect on global inflation, causing shipping and manufacturing delays that have led to record-high inflation in motor vehicle costs. There has been a notable rise in the cost of both repairs and replacements across all car parts and brands – the average inflation on car parts was 13.2% in 2021, 4 times higher than it was in 2020.
This has resulted in an additional risk to consumers that the retail value of their vehicle (the most commonly selected insurance value) may not actually be enough to match the cost of replacing it. This is the case when the value of the vehicle according to the manual (provided by TransUnion) is different to the price of purchasing that same vehicle from a motor trader. Innovations such as Discovery’s Retail value booster, where the retail value + 15% is paid out on a total loss event, can help to manage this risk, but the economic pressure on consumers is something that the industry needs to remain acutely aware of. Another notable effect from these delays is lengthened repair timelines, with insurers now needing to protect their clients by offering extended car hire options.
There has been a large number of severe weather events recently, with a five-fold increase in the number of these events globally over the last 50 years1. This is something that South Africans are not particularly accustomed to, as was acutely evident in the recent floods around KwaZulu-Natal. Climate change predictions show that this pattern is expected to continue and that we will likely experience fewer days of rainfall but at an increased intensity.
While the market has conceded that this extreme weather has played a major role in worsening loss ratios across the industry, it is important that we work to better understand these risks going forward rather than accepting the poor experience as an outlier. Weather patterns are, and will likely continue to be, relatively predictable. With data on weather patterns and global warming readily available, insurers should be focusing more effort on building better and more predictive models for these risks.
Natural disasters also highlight the need for financial advisers to properly understand and address these risks with their clients to ensure that they are covered for the right amount, carefully taking into account each home’s construction and contents.
Insurers are going digital
Digitalisation provides efficiencies for clients, insurers, financial advisers and society as a whole. With more than 70% of South Africans shopping online at least once a month2, it is evident that they appreciate speedy, tailored service that they can access at any time.
Increased digitalisation presents insurers with the opportunity to gather more data that they can then use to price more accurately. Tailored and more accurate pricing then results in lower costs and the potential for better premium offerings to clients, which will then benefit society in the development of insurance products which better suit client needs.
Advances in fraud detection and prevention through advanced analytics and AI will work to help make the industry safer, building more trust between insurers and their clients. In addition, the ability to access the required data from almost anywhere and at any time, enables financial advisers to assist their clients with immediate advice through improved service integration with Discovery tools like AI Quote (which generates like-for-like Discovery Insure quotes from a photo of a competitor schedule in minutes) and digital consent forms.
As the industry grows and develops, insurers gain access to more information than ever before. This opens the door for generating deeper insights into the risks faced by our clients. It enables us to better understand them and offer better pricing through the continued development of innovative ways of processing all this data.
It is only the insurers who know their risks well that can price for them appropriately and gain the industry advantage by sharing this value with their clients.