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Threats and opportunities in changing insurance landscape

Threats and opportunities in changing insurance landscape

A dominant theme in this year’s Santam Insurance Barometer is how the rapid adoption of technology is changing the insurance landscape, and insurers and intermediaries need to be aware of the potential opportunities and threats.

As Vuyo Rankoe, Santam’s head of Niche Business, notes, the use of technology was increasing before Covid-19, but it has amplified exponentially since the pandemic began. The survey found that three out of four people were using more technology than before the pandemic hit.

The rapid adoption of technology has disrupted traditional business models, with many firms forced to digitise faster than originally planned, says Philippa Wild, Santam’s head of Commercial Underwriting. Their research found that 97% of large corporates, 67% of large commercial entities and 63% of SMEs had staff working from home during lockdown. This resulted in 33% of large corporates, 31% of large commercial entities and 24% of SMEs updating their insurance cover.

“The considerable investment in technology and accelerated shift towards the digital age brought on by the pandemic is something insurers need to capitalise on. It is enabling insurers and their intermediaries to build new distribution channels and gain access to new markets. With more South Africans technologically connected, there is more opportunity for the industry to reach those who currently do not insure or are underinsured,” says Quinten Matthew, Santam’s executive head of Specialist Business.

Direct channels

Technology will continue to facilitate the growth of direct channels, and intermediaries seeking to make inroads into the underinsured emerging middle class can expect to face strong competition from direct insurers, says Andrew Coutts, Santam’s head of Intermediated Business. “Where risks are more straightforward, the insurance product has largely become a commodity that is easily distributed via technology-enabled direct channels,” he says.

Unsurprisingly, the Barometer found that intermediaries will be making increased use of technology for client interaction and back-office processes. The survey found that many intermediaries will be pursuing better systems integration with insurers in order to speed up the claims and quoting processes.

On the other hand, the personal touch remains important, at least in the corporate and commercial space. The Barometer found that most commercial clients who use an intermediary (75%) would prefer a return to face-to-face client engagement. In the absence of in-person meetings, email (67%) and the telephone (49%) are still preferred to video conferencing (39%).

Technology gives and takes

From a risk perspective, a comparison of motor vehicle claims and household claims illustrates the “give and take” impact of technology.

In the personal lines space, remote-working saw Santam’s volume of claims for motor for accidents, windscreens and theft decline by 18% year-on-year in 2020. But the average cost per claim increased by 0.4%. Similarly, in commercial lines, claim volumes were down 16% between 2019 and 2020/21, while the average cost per claim was up 2.8%.

Santam saw a 6% increase in household contents claims. Attie Blaauw, Santam’s head of Personal Lines Underwriting, says the frequent power surges due to load shedding and more expensive technology devices in the home (16% of consumers reported upgrading their computers and connectivity to enable them to work from home) undoubtedly played a role in the higher claims.

Opportunity for cyber insurance

The structural shift towards remote working and digital communication gives hackers more opportunity to infiltrate our digital worlds, says John Melville, Santam’s executive head of Underwriting Services, Reinsurance and International.

As with other risks, he says the initial focus should be on risk management. “Simple measures, such as making sure your anti-virus software is up to date and educating employees on email phishing techniques, would help to prevent the majority of cyber attacks.”

Melville says cyber crime is a complex and continuously evolving risk that requires more attention than it is currently receiving, and the Protection of Personal Information Act (Popia) creates an additional layer of complexity.

“If reasonable steps to comply with this regulation have not been taken, and a personal information breach occurs, businesses and individuals may be held liable through hefty fines (up to R10 million) and even jail time. It is of vital importance that the risk protection gap against cyber crime and Popia is closed, given the potential consequences. Underwriting the widespread risk of cyber insurance may be an opportunity to counteract the industry-wide premium reductions in motor and personal lines driven by the rise in pay-as-you-go insurance products.”

Wild says the risk protection gap in the cyber insurance spaced was “vast”. She believes that intermediaries will be key in driving broader and sustained awareness around cyber crime. “They have an important role to play in educating their clients about the benefits of cyber insurance and explaining how the cover works.”

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