The short-term insurance industry is experiencing undeniably tough times, evidenced by some brutal declines in reported earnings, and a rising tide of consumerism. In addition, continued uncertainty and volatility in both local and global economies are driving substantial change in the industry.
A PricewaterhouseCoopers (PwC) report - Emerging Trends and Strategic Issues in SA Insurance 2008 - highlights that the customer is at the centre of a number of these changes.
WHAT IT MEANS
 Trend is towards direct selling methods
Affinity is growing steadily in SA
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Based on interviews with senior executives in the industry, the survey reports that participants acknowledge that the customer is becoming more knowledgeable and sophisticated. This is having an effect on transparency, pricing, promotion and distribution and is also driving the trend of moving towards more direct methods of selling insurance products. Insurance providers are being compelled to examine their product offerings, distribution channels, pricing structures and consumer protection mechanisms.
The industry is being forced to carefully review its approach to the marketplace, question its traditional methods of operation and look to the future, says the report.
A multi-channel distribution approach from all industry participants, including the large and more traditional groups is now crucial to survival. Short-term insurer Telesure MD Tom Creamer says the longstanding broker distribution channel does remain highly relevant, despite consumers shifting towards online purchasing of insurance.
"There is definitely still a niche for them at the higher end of the market where clients' cover requirements are more complex. But they do need to maintain their service levels and offerings to make sure they do not lose share to the other distribution channels. Their competition interestingly comes more from the banks and their practice of customer referrals to in-group insurance companies, rather than from the more recent channels such as online."
A new and growing channel is the "affinity" distribution format. Here, insurers develop relationships with retailers and other organisations with a large consumer audience and leverage off their strong databases and brands. Creamer says the affinity model is prevalent in the UK market where 10%-12% of business is conducted through this channel. "It is a new concept in SA and at this stage accounts for a smaller 3%-4% of the market.
"The direct channel, through telephonic and Internet platforms, is obviously the big play for the future. In the UK, close to 80% of short-term personal lines insurance is sold online. In SA, this is much lower at 15% for the industry overall, with Telesure above this average at 30%."
Creamer says that in more difficult economic times, the contrasting trend is to significantly increase advertising spend on the direct sales channel. "In tougher conditions, it comes down to which brands are most visible in the market, and in response, we have increased our advertising for this channel by 50% year-on-year.
"However, this increase has to bring in business and through accurate return on investment measurements we monitor and ensure this spend is having a tangible effect on business."
The PwC report notes that several respondent companies mentioned the trend to direct distribution and noted the latest moves by large "traditional" companies to pursue direct channels, with increased distribution through the Internet being anticipated.
Another innovative channel is the "aggregator", an online platform that houses the insurance offerings of several competing businesses. Creamer says this format allows consumers to compare product offerings and prices. "It is quick, convenient and offers consumers an extensive choice."
No matter what channel is used to reach consumers, Creamer says that service excellence is vital to ensure a competitive edge. "We recently implemented a real-time customer service feedback system and have received 9 000 responses so far. In addition, Auto & General's Customer Service Charter, an industry first, clearly specifies our deliverables and should we fall short on any of these, there is a financial penalty to us."
