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Vis Govender | Trends shaping financial inclusion in SA's insurance industry


Vis Govender | Trends shaping financial inclusion in SA's insurance industry
06-10-23 / Vis Govender

Vis Govender | Trends shaping financial inclusion in SA's insurance industry

South Africa stands as one of the most unequal societies globally, underscoring the critical importance of financial inclusion in the nation's progress. Beyond growth and development, expanded financial inclusion promises to empower a broader spectrum of South Africans, allowing them to actively engage in the country's economy and protect their assets, thus fostering prosperity among individuals, businesses, and communities.


Nevertheless, the journey toward financial inclusion in various sectors, especially insurance, remains in its nascent stages in many regions of South Africa. The insurance industry, in particular, grapples with limited access to insurance products, notably short-term ones.


Even though South Africa's economy did exhibit resilience and growth in the second quarter of this year, the escalating cost of living has led to a decline in consumer spending across the board. This, regrettably, extends to the insurance sector, where a growing number of South Africans find themselves with reduced discretionary income, consequently hampering their access to insurance coverage, particularly among those in the lower income brackets.


However, South Africa's insurance market is showcasing its adaptability and resilience amidst these challenges. The industry is actively adjusting its strategies to align with the volatile economic landscape and the evolving needs of its consumers. Adding to this adaptability are some significant legislative initiatives. For instance, the proposed amendments to the Insurance Act, aim to incorporate legislation on micro-insurance. Additionally, the Financial Sector Code has been modified to require insurance companies to account for Access to Insurance Products in their BBBEE compliance scorecards.


This is good news as addressing the vulnerabilities of low-income earners, who often bear the brunt of unexpected shocks, becomes crucial in the quest for broader insurance coverage and more inclusive insurance offerings. Insurers are rethinking their strategies, capital allocation and importantly their attitude to this under-served market segment.


We are seeing several key trends emerging in the insurance sector aiming to embrace these legislative imperatives as well as deepen market penetration and encourage broader uptake of insurance coverages in the lower LSMs.


Digital Innovation through Insurtech:


The utilisation of cutting-edge technologies such as Artificial Intelligence (AI), machine learning (ML), and deep data analysis has given rise to insurance products characterised by intelligent underwriting. These offerings are competitively and correctly priced and feature adaptable and personalised options. Such innovations empower consumers to effortlessly customise products to fit their needs and pockets, make changes to their portfolios as and when they need, change products or insurers, submit claims, all at their convenience.


These technological advancements not only save time through streamlined insurance processes but also facilitate timely claims processing, precise risk evaluations, and efficient policy issuance. AI-driven systems are capable of automatically adapting to changes in a customer's risk profile, changing crime and weather patterns or shifting market dynamics, significantly enhancing the overall customer experience. We no longer need to design products for the lowest common denominator nor paint all customers with the same broad brush.


Innovation to meet Low-Income Needs with Microinsurance


Microinsurance caters to the unique requirements of individuals with lower-valued assets, and offers compensation for specific events such as illness, injury, or death through affordable products. Microinsurance plays a pivotal role in addressing inefficiencies within the insurance market by providing support to those residing or working in high-risk environments.


In South Africa, microinsurance is predominantly available in the form of funeral coverage and is generally targeted at lower-income demographics. It can extend to include low-cost health, life, and legal coverage. Furthermore, some of the broader microinsurance products encompass offerings like retrenchment and disability insurance often linked to credit or account purchases. Some of the more innovative concepts offer "free" or embedded insurance when for example you purchase airtime.


Rise of Non-Traditional Insurance Providers


Non-traditional insurance options are introducing a new dimension of flexibility, value-added benefits, and heightened customisation beyond conventional insurance offerings. These include point-of-sale access to insurance coverage and embedded insurance offerings where you are automatically insured when you purchase another product. Examples of this would be automatic funeral cover when you buy airtime, or extended warranty when you buy white goods or even a car. In a world increasingly dominated by digitally-savvy consumers seeking personalised solutions, non-traditional insurance providers are gaining traction. 


Provided you can establish a 'trust' relationship and give them flexibility, choice and convenience customers are increasingly prepared to buy insurance from start-ups and other non-insurance brands. A recent Deloitte survey revealed that 85% of respondents express a willingness to purchase insurance from non-traditional providers.


Demystifying Insurance through Consumer Education to Foster Trust and Confidence


One of the primary hurdles to insurance uptake lies in the lack of trust in insurers and the intricate nature of their products. Most consumers struggle to comprehend the full scope and limitations of their coverage, with insurance policies characterised by dense, technical language. This lack of clarity typically only comes to light during the claims process, leaving consumers feeling ill-prepared, unsupported, and vulnerable to unfair settlements.


The complex structure of the policy contract means you need to carefully read the cover provided section in conjunction with the exclusions (cover not provided section) in conjunction with the warranties section (cover only provided if you comply with something). You also need to understand the difference between "storm" and "flood" or "earthquake" and "subsidence" where one could be covered and the other not. 


To many disaffected consumers insurance is seen at best as a necessary evil and at its worst a scam because you are paying every month for something you (may) never use. This attitude is unfortunately exacerbated by insurers who accept your premiums every month but offer you incentives not to claim.


These are all positive trends for the insurance industry being driven through various Insuretech platforms who are both challenging and enabling the traditional insurance players. These Insuretechs range from Product Providers like NakedPineapple or Lemonade internationally to full Digital Marketplaces like Everything.insure who offer multiple products in a single platform.


In summary, South Africa's insurance sector is in a state of transformation, spurred by digital innovation, the expansion of microinsurance, the rise of non-traditional insurance providers, and a renewed focus on consumer education. These trends will collectively broaden insurance coverage, enhance financial inclusion and contribute to the nation's economic development.

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