IIG News

IIG Insights Outlook 2021

On the 10th of March 2021, the IIG Council Members warmly welcomed our members to its first virtual insights session for 2021. Our newly appointed President Tshepiso Chocho welcomed our council and its members duly noting in the interests of keeping its members and council safe by having the session virtual even though the country is in level one lockdown.

The IIG theme for the year is “Be the difference”, where we can be different, choose different, be the spark of excellence and drive our country and our industry to new heights is the encouragement for 2021.

This session themed: Economic, Industry and Regulatory Outlook was sponsored by Sasria and hosted by our speakers from Standard Bank, Deloitte & Touche, and Norton Rose Fulbright.

 

Economic Outlook

Our first speaker was Andre Snyders who is an industry specialist at Standard Bank. His team analyses the full range of industries that contribute to shape the economies of Africa. Their goal is to utilize economic tools and market data to help clients and colleagues understand the way that industries operate and are likely to develop.  Andre has worked in equity research support and also as a news journalist.

Andre Snyders thanked the IIG organizers and mentioned the opportune timing of this specific webinar. He believes it is the best time of the year to present an economic outlook due to the following:

  • GDP Data just released for 4th quarter 2020
  • National budget with tax announcements
  • Opening of parliament and SONA on policy and policy agenda
  • Two full months of trading in national and international equity and debt markets
  • New US President making new trade policy
  • Data from life insurance and listed insurance companies releasing trading statements on full year results
  • China’s two sessions in congress
  • No change to major central bankers in the world
  • Quality data being received on building these economic views

 

Andre covered a range of topics over the current economic climate and the key take outs were:

 

  • Perspective – on the back of sound data on offer
  • Consumer Spending – dominated the economy over the past decade
  • The fiscal position and the budget
  • Credit ratings, sovereign debt and SOEs
  • The ZAR and other global currencies
  • Inflation and policy rates at the SARB
  • The bond market in SA and globally
  • The equity market in SA and globally
  • Commodities in SA and the global commodity cycle

 

He advises that the forecasts are being updated as we speak and covers the following salient points :

 

  • Andre expects GDP to grow 4.6% in 2021 due to good news off late and then drop to 2.2% in 2022 citing challenging economic climate since the Pandemic started
  • Rand/Dollar to end below R15
  • CPI will remain steady and rise slightly
  • Household consumption expenditure will offer the most growth
  • Growth baton will be passed to fixed capital formation

 

The perspective taken is focused on financial markets that is, how the rand performs against international markets and influences the local markets.

 

Consumer spending is where most of our economy is active and Andre covered a retail and trade view with the audience.

 

Andre shared a graphical representation of the GDP composition. Manufacturing used to be the largest part of the economy.

 

Overall, Andre shared a positive economic outlook with the audience despite the current pandemic challenges. He further advised on the insurance sectors positive contribution to this sector. In summary Andre advised that Growth is critical to progress. Growth equals ordinary SA households to be able to prosper.

 

Global Outlook

The second speaker of the day was Jaco van der Merwe, Actuarial & Insurance Solutions Director at Deloitte & Touche. Jaco has over 17 years of industry experience and covering the full range of actuarial services for a wide range of industry players both locally and internationally.

Jaco’s presentation was aimed at highlighting some of the pertinent industry developments from his perspective as an actuarial adviser to a number of non-life insurers. He also aimed at highlighting global trends that may impact on the future of the South African Insurance Industry.

Our Current Context: Scenarios for Resilient Leaders

Jaco started by giving perspective on some research that was done locally around scenario planning by business leaders in the insurance space in South Africa, particularly on how scenario planning helped inform and formulate a view on the outlook for the industry.

Scenario planning has moved from a compliance exercise to being more embraced by business leaders due to the industry becoming more volatile, unstable and unpredictable.

Outcomes of a local study done by Deloitte around scenarios for resilient leaders include:

  • Responding to current situation to ensure survival
  • Recovering: Leaning and developing responses to emerging stronger
  • Thrive: How to prepare for the next normal

Covid-19 has accelerated certain industry trends, such as digitisation, increased virtualisation of workforce whereby organisations have adjusted to working remotely; emerging of pop-up ecosystems by means of increased creative partnerships to develop the mindset and agility to collaborate across ecosystems and enhanced focus on cost reduction to name a few. Covid-19 has also decelerated certain industry trends such as the slowdown in the sharing economy, slowdown in urbanisation and also reduced global movement of people and goods.

Jaco mentioned that these trends have definitely changed insurers and the insured’s risk profiles. This provides insurers with an opportunity to provide covers that are needed by consumers, therefore opening up channels for growth.

 

Global Perspectives: Defining Trends in Insurance

Global surveys conducted indicate that consumer needs are changing. 45% of consumers feel that the offering of non-insurance products is the most important factor when picking an insurer. With regards to growth, there is a shift from “protective” insurance to a more” preventative” focus. There is an increased use of technology and IoT to proactively manage risk, however the insurance industry is slow to adapt to technological changes. Lastly M&A are expected to drive at least 50% of industry growth within the next 5 years, with innovative insurance startup offerings being a top driver for M&A.

 

The Future of Reinsurance: This time it is Different

In closing, Jaco touched on the future of reinsurance seeing that reinsurance plays an important part of the insurance industry. Historically the industry consistently delivered high returns, but things are changing:

  • Alternative capital has grown from an ART to +/ one 5th of industry capital
  • Industry return has fallen in 4 out of last 5 years (normalizing for natural catastrophe, reserve releases)

To end on a positive note, there is an expected success growth pivoting around the current business model for reinsurers by making use of new technology.

 

Regulatory Update

Our last speaker was Patrick Bracher, Director at Norton Rose Fulbright who has years of invaluable experience and an in-depth knowledge of insurance law (pure insurance, regulatory aspects and the commercial side), financial transactions, regulatory law and constitutional human rights law. He advises many of South Africa’s life and non-life insurers, the South African Insurance Association and Lloyd’s of London in South Africa.

 

There were several broad topics that were covered by Patrick, the first was on the over-regulation in the financial services sector. In the international world of business, Singapore and the state of Delaware in the USA has made it easy for a business to setup thereby bringing in a large number of investors into the country. Interestingly, the British Parliament has formed a committee to find ways to cut down laws in the financial services space and the remark of whether South Africa will do the same is just a matter of time.

 

The need for simplifying regulations is needed more than ever as companies are spending more and more time on compliance instead of working on ways that can further enhance treating their customers fairly or developing better products or services.

 

Patrick touched on the retail distribution review that began in 2014 that has shown both positive and negative results. The retail distribution review results from the intention to ensure that intermediary remuneration must be limited. Carving advice and advice-related activities out of the definition of “services as intermediary” is a test as most insurance requires some form of advice giving.

 

The other problem of over-regulation namely the Conduct of Financial Institutions Act currently in the form of the COFI Bill is prevalent. The COFI Act will be framework legislation and backed by a mountain of conduct standards which will replace the legislation repealed by the Act, such as the Long-term Insurance Act, the Short-term Insurance Act, the FAIS Act, the Financial Institutions (Protection of Funds) Act, and major amendments to the Financial Sector Regulation Act itself as well as the Pension Funds Act and other laws. The basis of this legislation is to create a principles-based law rather than rules-based one.

 

Patrick also spoke about the debarment challenges that is keeping the Financial Sector Tribunal overburdened with disputes instead of using their resources on more principled matters. The matter on outsourcing is an ongoing one that is still being played out and needs a consensus or a decision of the Financial Sector Tribunal or the courts on review under the Promotion of Administrative Justice Act.

 

Another interesting development is the most recent on premium collection where FSCA send Exemption Notice 1 of 2021 on certain independent intermediaries that allows third party collection until the 31 January 2022. The contest is that of charging for additional remuneration over and above the regulated commission relating to the services rendered in facilitating the collection of premiums and managing the allocation of funds. The issue is still under discussion and will continue to be a regulatory issue during 2021.

 

Patrick ended his presentation on the aftermath of Covid claims that has caused reputational damage to the non-life insurance industry. There is a high possibility that any form of pandemic will be in the future be an exclusion from the policy wordings. Of significance is the fact that the courts around the world notably the UK, South Africa and Ireland have turned 300 year old concepts of proximate cause on their head in a new spirit of consumerism.

 

The session ended on a answering a few questions that were asked by the audience which our speakers appropriately addressed. Tshepiso ended by thanking the speakers and members for their time and reminded the members to use the IIG CPD Vault to claim for their full 2.5 CPD hours.

 

This article was written by Suren Kasil

 

This IIG Insight session was sponsored by:

 

 

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