Economic hardship ahead but Mutual & Federal has a plan
The year 2014 will be a year in which economic hardship will continue for Mutual & Federal’s clients, particularly in our personal lines division. Although the year has just begun, some trends are already quite apparent. Rising interest rates and a slowing economy are all bad omens for disposable income in the coming year. Typically, when disposable income comes under pressure the short-term insurance industry suffers. Initially with clients cancelling policies. This is to their own detriment, I should add, because it is unimaginable to be without cover. Perhaps more insidiously, the weak economy affects the insurance sector by leading to spikes in crime and fraud incidents. All of these behaviours put pressure on claims cost and ultimately premiums. Still on the macroeconomic front, a major challenge the industry is facing is the weakening rand. The weaker exchange rate is a key cost driver in the business and industry. It leads to an increase in the cost of motor spare parts, thus contributing to an increasing cost of claims.
Another trend we’re picking up in personal lines is the increase in the frequency of damage caused by extreme weather. While it is clear that the climate is changing, it is however difficult to accurately measure the pace of change. We have had two unexpectedly bad years and this is going to put pressure on insurance costs. Climate change also affects the insurance sector indirectly, mainly through the increased costs associated with mitigation strategies.
As climate change intensifies, one of the responses by commercial entities has been to construct more energy-efficient buildings. Although these buildings promise to reduce operational costs as a result of more efficient use of resources, their systems are more expensive to construct than conventional buildings. This has an impact on the cost of insuring them.
However, at Mutual & Federal we are not sitting back and wringing our hands in despondency – we’re taking solid steps to reduce internal costs associated with our products.
Technology will play an ever more important role in reducing these costs in future. The phenomenon of the app will be at the heart of that. On the horizon
are apps for claims and accident management and in the near future we’ll see telematics technology that will assist in better pricing and behaviour. On the administration side, technology plays a vital role in streamlining and providing a better service for clients.
However, technology is not a silver
bullet. Hence, another important step that we’re taking to improve the quality and value of our insurance service is to embed key customer-friendly regulation even deeper.
Insurance has always been a grudge purchase, sometimes for good reasons. Treating Customers Fairly (TCF) regulation will go a long way in softening that sentiment. These regulations will define general conduct in the insurance industry, which will lead to customers being treated more fairly. We will also see the Office of the Ombud playing a more prominent role in ensuring consistency where the fair treatment of customers is concerned.
Customers want choice in how they buy their insurance, and I do see more customers going more direct in future but I cannot see advice disappearing, there will always be a need for it. Through our iWyze product, we’re perfectly positioned to fulfil the market’s preference for the two sales models (direct and intermediary). Despite the current challenges, we’re confident and enthusiastic about the future of the short-term insurance industry.
Coenraad De Jager Executive: Personal