IIG News

IIG Insights: Industry Outlook 2019

On 14 March 2019, the IIG held its first insights session, proudly hosted at Hogan Lovells in Sandton. This session was attended by 100 delegates across the various insurance sector, all eager to hear what our speakers had to share on the topic “Industry Outlook”. The MC for the morning was IIG Deputy President, Darryl Grater, who welcomed the delegates and who thanked, Hogan Lovells, Nedbank and Santam for sponsoring the first insights session of 2019.

The Industry Outlook topics covered were “Industry Outlook” presented by Trevor Blackstock from Santam Reinsurance, “Economic Outlook” presented by economist Busisiwe Radebe from Nedbank and the “Regulatory Outlook” presented by our host Christine Rodrigues from Hogan Lovells. The IIG also launched their new “CPD Vault” and Charmaine Koch from AC Develop was invited to introduce it to the delegates.

Industry Outlook
Trevor Blackstock set the scene from a global market perspective, highlighting the market losses that took place from 2017 both internationally and locally that resulted in the insurance market position for 2018 and the impact it’s had in terms of market hardening.

In 2018 there was a definite market hardening, loss of alternative capital markets, decrease in covers, premiums increased and reduction in capacity for specific risks. Trevor gave examples of the impact the losses had on specific insurance companies both locally and internationally which has resulted in insurers/reinsurers reviewing their underwriting strategies.  These changes resulting in improved underwriting at the end of 2018.

So what do we have to look forward to? 

Trevor anticipates that we will see pricing and rates stabilising in 2019 with slight increases in 2020.  In 2019/2020 Emerging Markets will continue to drive premium growth.  There will be a growing complexity of emerging risk categories.  We will also see increased innovation in scope of covers, mostly through specialization and resourcing.  Insurers are becoming more and more removed from the cause of risk, so innovation is required to price the risk correctly.  This year will also bring about diversification of income streams and alternative distribution channels.  Trevor was optimistic about investments made into technology, even though we are seeing stabilizing loss ratios for companies like Lemonade, he emphasized the need for scale. In SA, he foresees subdued growth with focus on cost and margin management, there is limited opportunity for new entrants in the industry, more mergers and acquisitions as only the big companies will survive.  He forecasts continued growth in cell captive solutions and the return to specialised UMA solutions.

In closing, Trevor Blackstock said that the industry must improve the enforcement of regulations and that no company should still be paying fines for non-compliance.  With regards to technology, SA can become a leader as we have already seen the work done in the microinsurance space.  We do have high barriers such as legacy systems and troubled municipalities, however we must work with the municipalities to fix what is happening in the country

Economic Outlook
Busisiwe Radebe gave a very realistic and informative view of the country’s economic state.  She showed how other countries started to do better after the 2008 recession, however, SA was hit by a technical recession in 2018.  In her view, the main problem in SA is largely due to our high unemployment rate.  She commented that our high level of unemployment is structural, we have a jobless growth.  This means that we have people that cannot buy goods and pay tax to improve the country’s GDP.

Some of the reasons for this jobless growth is our labour inflexibility, most companies still hire temporary staff so they don’t have to deal with the heavy SA labour legislation.  She spoke about how government was the biggest employer after the recession in order to increase consumer spending which cannot be sustained as Government has to borrow money to maintain their expenditure. SA government’s debt is growing at a percentage of 55.6% to 58.9% in 2019 – 2022.

She commented on feedback that was given to government regarding the problems facing SA and feedback given was as follows:

  • SA doesn’t have “know how”
  • We need foreign direct investment
  • We need high skilled immigration
  • Diaspora – we are losing highly skilled people
  • BEE is killing startups
  • There is a global competition for talent and we have taken ourselves out of the race

Other issues raised were:

  • Our education system
  • Our stance on tourism
  • SA has a bad attitude towards the world
  • Problematic legislation (e.g. Visa laws)
  • Our labour movement is too powerful
  • We have selfish leaders
  • Lack of policy coordination

At last, some solutions were tabled, however, it would be years until we saw the results:

  • We are the most unequal society in the world, we must create jobs, roll out the red carpet for job creators
  • Come to a compromise with labour unions
  • Create jobs for the economy we want, not the one we have. i.e. pump out low skilled jobs
  • Fix education
  • Improve on policy coordination and get policy certainty

With all that said, the economy should fare moderately better over the next 3 years with GDP growth of 1.3% – 2% between 2019 and 2021.

Regulatory Outlook
Christine Rodrigues started by highlighting the objectives of National Treasury and emphasized the aim for collaboration between the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA).

What does the future hold in as far as regulations are concerned? 

TCF is still a focus. Financial institutions must be able to demonstrate that they meet the outcomes which are principle based. PPR focuses on on-going review of product performance, monitoring product and disclosure documents as well as data management where insurers must be able to access data anytime when required.

Fintech will continue through Insurtech, Regtech and payment solutions. The following were also highlighted as upcoming focus in the industry:

  • The use of technology for premium collection,
  • Community based insurance,
  • COFI which is intended to create consistency within the financial industry and streamline the legislative environment,
  • National Treasury recognises that there should be a fintech policy that enables financial inclusion and the introduction of the regulatory sandbox,
  • The FSCA recently established an Innovation Hub and Fintech unit, and
  • Any regulation interventions will be principle based, activity centered and technology neutral.

The introduction of the CPD Vault
We are proud to announce that we now offer CPD hours via the Financial Planning Institute of South Africa (FPI). To enhance attendees CPD journey, the IIG has developed a portal called the IIG CPD Vault, which will ensure that IIG members can secure a full record of their attendance from events, conveniently download all relevant certificates, and book for any upcoming educational events on our IIG 2019 calendar. Contact #YourIIG office at info@iig.co.za to find out more.