‘Change is a coming’ – with industry leaders forecasting a shift in the insurance industry, a vast majority of insurance companies will need to decide whether they'll sink or swim. In order to survive this change in tide, experts both locally and internationally have suggested that product differentiation and new product development is required.
Different trends in the insurance industry are emerging in different economies. And the industry is said to be suffering substantially more in developed economies, whereas there appears to be room for growth and development in emerging markets.
Major trends have been identified that are likely to change the world of insurance and, unsurprisingly, they include but are not isolated to the following factors:
Social: What the consumer deems to be more preferable will develop the way in which insurance is sold and how the market evolves. In other words, the power now lies in the hands of the consumer through the disclosure of their preferences.
Technological: With the advances in software development, insights into the consumer’s needs are being identified at a rapid rate. This also means that insurance brokers have more opportunities to branch out on the development of insurance products.
Environmental: The development of more advanced risk models is underway in order to gauge the frequency of natural disasters. With the number of natural disasters increasing, the need for advanced risk models has become necessary so as to aid the regulation around the pricing of products, as well as aid the process of making assumptions on the potential claims to be expected.
Economical: The after-effects of the recession have contributed towards consumers and business investors alike closely observing their spending. In turn, the industry would need to contemplate new strategies for product development and innovation in an already saturated and competitive industry.
Political: Regulatory reforms instilled in both emerging and developed economies will control the standardisation of products and practices in the industry, hence the need to review the legislation in place.
Internationally, there is a growing movement away from the purchase of long-term insurance. With an increase in the cost of long-term insurance cover, insurance companies have identified the need to adapt their current policieswhich has inspired new product development strategy. More and more consumers appear to be opting for a more hybrid product offering of insurance.
As it stands, long-term coverage as an insurance option is no longer as sustainable as it may have been for the previous generation. Though people are still purchasing it, albeit a smaller portion of them, the quality of the cover is now questionable, as many are purchasing a less expensive variation of it. This may not cover half of their anticipated, future pending expenses, leaving them underinsured and vulnerable.
With reference to the South African market, the insurance industry is often seen as a ‘necessary evil’ which is why improving the perception of the insurance market has become so crucial. With more than half of the South African population living below the breadline, something needs to be done about the number of people who are unable to afford insurance. This has led to the rise of micro-insurance - a community-positioned insurance framework that holds promise in the South African market as well as across emerging markets.
According to the KPMG Insurance Industry Survey 2013, a need has been identified for the development of insurance products for lower income groups. And a reform in micro-insurance legislation is said to be underway, as to remedy this problem and make insurance more affordable.
With the insurance industry, both locally and internationally, facing a number of challenges and the need for redevelopment, much of the bargaining power is now said to lie in the hands of the consumer. The future of the local insurance industry holds much promise and, with the added insights being generated on a more real-time basis with the help of big data, we can expect a number of new innovations in what was previously thought to be a static and pedestrian industry.