Industry Outlook

Dale Sutton-Pryce

Forming partnerships has been key to Hollard’s sustained growth over 30 years

Dale Sutton-Pryce, Divisional Director of Hollard Insurance Partners (HIP) responsible for new partnership business development and Afroglobal initiatives

For three decades, forming partnerships with exceptionally innovative specialists has been fundamental to Hollard’s sustained growth and our diversity across almost all categories, owning both short-term and life licences.

By giving our full backing to established experts, innovators and pioneers of new ideas, Hollard has consistently delivered genuine specialisation and expertise to buyers of insurance and brokers as well as many ‘firsts’ to the South African insurance industry.

For a couple of years there has been a fear that the UMA model wouldn’t survive, given the proliferation of new entrants and the increasing amount of legislation focusing on insurance intermediaries and outsourced arrangements; however, Hollard has been fully engaged and at the forefront of negotiations concerning impending legislation that will impact UMAs, in particular through SAIA and the various committees that represent the Industry.

The future of the UMA

The good news is that the UMA entity is here to stay: the FSB’s Binder Regulations have clearly defined the UMA as an agent of the insurer in its chosen class of business; however, this means survival will only be for UMAs that act as underwriters and true agents of insurers.

Hollard is confident that our many specialist partners are well positioned for the changes ahead and that the UMA model we created over 25 years ago is sustainable. On the other hand, we expect to see many small commodity-based UMAs – with no product differentiation – fall away or become absorbed by large composite insurers because key drivers are economies of scale and critical mass.

As we look even further into the future, with the way the world is moving and with lessons learnt from the recent global economic crisis, we see that mammoth corporates are clearly under threat and may be less sustainable going forward.

Because of agility and their capacity to respond quickly to changing market dynamics and increasing consumer demands, we believe that the economic power of the future lies with SMEs and medium-sized businesses. These will drive both employment and new business growth and UMAs fit this type of profile.

There is a paradox that is developing worldwide: consumers want a combination of high technology and high touch. The good news for our industry is that UMAs are able to deliver on both and, in particular, the personal touch and relationships with brokers and their clients.

The competitive edge

Where does the competitive edge lie in this fast-paced and changing environment? From a Hollard perspective, our partners give us specialist diversity to engage with every lifestyle need. We have a diverse range of innovative products that can be tailored for each of our brokers and their client’s specific risks – no matter what they are.

From the UMA perspective, Hollard gives its partners access to the benefits of corporate scale and resource, while retaining independent agility and flexibility to be innovative and responsive. Our partnership gives them the benefits of both the ‘best of big’ and the ‘best of small’.

Services that would normally be prohibitive from a cost perspective, and which belong to our UMA partners, are, for example:  access to handpicked Matriculants through our UMA/Broker Learnership School now in its sixth successful year; qualifications for their staff through our in-house Hollard Academy; economical advantage of mass-buying procurement; top legal backup; marketing, strategic and operational resources – and more. This frees our UMA partners to do what they do best, regardless of their size, and grow their businesses with our passionate support.

Herman Schoeman

Cell Captive Outlook: regulatory uncertainty

Herman Schoeman, MD of Guardrisk

In 2011, we can expect to see the ‘next phase’ of the convergence of the alternative risk transfer (ART) and traditional insurance markets. This will most likely be in the form of formalised partnerships, like the one concluded recently between Guardrisk and Absa. In this model, the very different skill sets of the two markets come together to deliver integrated solutions; as opposed to the current model where traditional insurers attempt to enter the ART market on their own, with varying degrees of success.

On the legislative front, the cell captive industry will be watching keenly to see what comes out of the proposed new binder holder regulations. The industry urgently needs the regulator to clarify how the regulations will impact on cell captive structures (the memorandum to the regulations clearly states that the draft regulations did not take cell captive and ownership structures into account). It is unfortunate that these regulations were drafted without considering these issues and they will have to be aligned, sooner rather than later, as it will be impossible for cell captive owners to apply a law which simply does not cater for this sector of the market.

The saga of the demarcation of medical insurance products continues. There has been no clarity forthcoming and it is extremely frustrating that, at the time of writing, the various legislators have not yet been able to provide any form of draft regulations.

The introduction of the revised capital regime to be known as Solvency Asset and Management will have a significant impact on the insurance industry in that it will change the way that capital is managed, particularly in the ART environment where a number of sources of capital is used; and capital usage and distribution will become increasingly important in future.

In recent years, the industry has worked extremely hard to improve its image, reputation and service levels to customers and the Treating Customers Fairly process is a regulatory intervention that will merely formalise what the industry has already been doing. It’s a pity that, despite the industry’s initiatives, the policymakers are still of the opinion that these initiatives are inadequate, hence the need for the regulators to formalise something as basic as the fair treatment of customers into legislation.

While the regulatory review of cell captive industry is not imminent, it is expected that, in the not too distant future, the regulator will turn his attention to devising regulation that recognises the cell captive’s unique structure. The driving force for this review may well be the necessity of a regulatory framework to provide for micro-insurance.

Certain segments of the retail industry are showing healthy signs of recovery and this bodes well for the third party cell captive segment of the ART market in 2011. The retail industry has repeatedly displayed its resilience and is extremely innovative when it comes to finding ways to continue increasing the product offering to its client base. We can certainly expect to see more financial services products – especially within the micro-insurance arena – distributed via the retail distribution channel in 2011.

The alignment of the Financial Sector Charter and the DTI B-BB EE codes is an extremely positive development for the industry. One can only commend the political will that has been shown to develop a customised transformation framework for an industry that makes a sizable contribution to the country’s gross domestic product.

The skills shortage remains the industry’s biggest challenge, particularly in the ART environment where intellectual capital is the key competitive differentiator. In recent years, the skills shortage has driven the cost of employment up to such a level that the industry finally understands that, from a sustainability point of view, it is better to invest in and develop its own people. Albeit long overdue, this realisation augurs well for the long-term future of the industry as a whole.

Last, but certainly not least: the industry has embarked on a very exciting initiative to critically review and evaluate the role that it should play in the general sustainability of all facets of the South African landscape (including education, environmental management, protection of resources, and social welfare, to name but a few).