Through transferring risk to an insurer's balance sheet, a firm can mitigate the negative impact of insurable adverse circumstances.
The current business environment of low domestic economic growth and rising costs, with relatively pedestrian global growth, poses certain challenges for the short-term insurance industry and we can expect a few difficult years ahead for the sector.
I expect to see some rationalisation of products within the industry with poorer performing lines being dropped by some of the players and this is likely to place upward pressure on premiums. Premiums on motor insurance, for example, are razor thin at present. If some insurers opt out of this market segment, we can expect those premiums to rise.
Insurers will need to adapt to and embrace the new regulatory environment. Treating customers fairly (TFC) has - quite rightly - been introduced and the solvency assessment and management (SAM) risk-based supervisory approach is coming into being.
TCF, as the name implies, is policy aimed at ensuring that all players in the industry treat their customers fairly. Fairness needs to be at the centre of a firm's culture and we need to market products in such a way that they are easily understood and appropriate for clients' needs. Transparency is vital in all aspects of our business - from the fee structure to the performance expectations of products.
The SAM regime is not unlike the Basel II banking regulations. This regime aims to ensure that all insurers will be able to meet the claims made on them and to protect policyholders from a failure of the insurance company. It is designed to improve confidence and stability in the insurance industry.
We certainly applaud these moves to improve customer experience and the long-term viability of the insurance industry, but they will add to cost pressures for the sector and insurance companies will need to adapt accordingly.
Having said that, there are definitely opportunities to develop in under-serviced market segments and I anticipate the emergence of new products to satisfy specific market niches.
There is also great scope for the industry to up its game in the servicing of clients, to create more efficiency in the claims chain and to introduce innovation in procurement strategies. Insurance companies often provide a service to clients via a third party, such as a panel beater in the case of vehicle damage or for the replacement of geysers (incidentally, one of the biggest claims on home-owners' policies). By driving change within the procurement chain - such as providing training and support for entities which support the industry and looking for cost efficiencies - we hope to be able to render an even better service to our clients.
Insurers also need to simplify the claims chain for clients, making the process easy and transparent. By cutting the number of enquiry points and making use of cutting edge technology, we believe that this can be achieved.
Another area for insurers to grow lies in the potential for compulsory vehicle insurance, at least for property damage claims - notably, the balance of third party insurance. This is one of the most important risk mitigation steps that the industry is taking and it will assist in providing access to financial services in entry-level markets.
Africa is another great opportunity beckoning insurers. The emergence of a new middle class on the continent, with rising disposable income, offers great potential for insurers. This, coupled with the growing democratisation of the region, underpins the prospects. We expect the financial service industry to benefit from the consumer growth, especially as those consumers move to greater product sophistication. I believe that insurers which look north and find ways to expand into Africa, will be able to take advantage of a great growth opportunity.
To thrive in 2015, as insurers we will need to place customers at the centre of our business. We need to review our products, policies and processes to ensure that they are relevant to customers' needs and that they can deliver on the promises that we make through them.
