Transcript None - Insurance Gateway

Presenter: Barry Stott
Life Seminar 2008
THE CHALLENGES OF THE
LIFE INDUSTRY – Strategic &
Emerging Issues
20 February 2008
PwC
Agenda/Contents
• Emerging Trends and Strategic Issues in South African Insurance
comparison and trends from 2004 to 2006
• International comparisons and trends – Banana Skins
• The 2008 South African survey
• Conclusion
• Peer review
PricewaterhouseCoopers
15 January 2008
Slide 2
Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006
• Surveys focused on strategic and emerging issues
• Provide industry-wide perspective
• Personal interviews with managing directors and senior executives
PricewaterhouseCoopers
15 January 2008
Slide 3
Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006
Main findings
2004
Financial Sector Charter
Main issues
2006
Product, pricing and distribution
(BEE & emerging black insurance market)
Legislative and regulatory
Consolidation and polarisation
Self-criticism of
industry
PricewaterhouseCoopers
Reputation / Image damage
Distribution channels
Value for money
AIDS
Lack of transparency
Compliance
Distribution channels
15 January 2008
Slide 4
Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006
Main findings
2004
2006
Intensive competition
Threat from established broad-based financial institutions
Competitive
markets
Long-term market overcrowded
Channels expecting growth:
Channels expecting growth:
worksite marketing,
bancassurance, direct sales
bancassurance and direct sales and retailers
PricewaterhouseCoopers
15 January 2008
Slide 5
Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006
Main findings
Drivers of
change
Pressing issues
2004
Long-term Industry
• FSC
• Economies of scale
• Capital requirements
Short-term Industry
• FSC
• Technology
• Capital requirements
Long-term Industry
• Regulatory
• FSC
• Consumerism
Short-term Industry
• FSC
• Regulatory
• Technology
1. FSC
1. Retaining existing
2. Profit performance
customers
2. Building a customer base
3. Recruiting/training
competent staff
15 January 2008
3. Cost reduction
PricewaterhouseCoopers
2006
Slide 6
Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006
Main findings
2004
2006
Companies believed they will undergo restructuring
Restructuring
M&A
Regulation and
governance
PricewaterhouseCoopers
Joint ventures & alliances
Regulatory pressure to increase Regulatory pressure to be
substantially
maintained
Poor integration with other
functions is the key barrier to
compliance
Complexity of regulatory
environment is the key barrier
to compliance
15 January 2008
Slide 7
Emerging Trends and Strategic Issues in South African Insurance 2004 to 2006
Main findings
2004
Enterprise-wide risk
management very important
2006
Effectively manage and
measured risks
Risk
Effectively manage ALM
management and
fraud
Effectively manage fraud
Policyholders main source of fraud
PricewaterhouseCoopers
15 January 2008
Slide 8
International comparisons and trends
• Long-running series on banking risk
• First survey of insurance
• Paints a picture of the risk landscape
PricewaterhouseCoopers
15 January 2008
Slide 9
Top ten banana skins
Global
1.
Too much regulation
2.
Natural catastrophes
3.
Management quality
4.
Climate change
5.
Managing the cycle
6.
Distribution channels
7.
Long tail liabilities
8.
Actuarial assumptions
9.
Longevity assumptions
10. New types of competitors
PricewaterhouseCoopers
15 January 2008
Slide 10
Life Insurers Banana Skins
LIFE INSURANCE
LIFE INSURANCE
• Strongest concern is over-regulation
1. Too much regulation
• Other concerns lay close to the
2. Distribution channels
nature of the business
• New competitors in the savings
market posing a risk
3. Interest rates
4. Longevity assumptions
5. Political shocks and pressures
6. Investment performance
7. Management quality
8. Retail sales practices
9. Equity markets
10. New types of competitors
PricewaterhouseCoopers
15 January 2008
Slide 11
South Africa Industry Survey vs. Global Insurance Banana Skins
• Comparison of Emerging Trends and Strategic Issues in South African Insurance responses to
Insurance Banana Skins responses
Risk
Too much regulation
Natural catastrophes*
Management quality
Climate change*
Managing the cycle
Distribution channels
Actuarial and longevity assumptions*
New types of competitors
Investment performance
Managing technology
Capital requirements
Mergers and Acquisitions
South Africa
a
* Not included as risk in the South African Survey
PricewaterhouseCoopers
a
a
a
a
a
a
a
a
Global
a
a
a
a
a
a
a
a
15 January 2008
Slide 12
Global Insurance Banana Skins
Natural catastrophes & climate change
• Sharp rise in catastrophic events e.g. avian flu; tsunami, flood & climate
change
• Industry’s ability to price these risks and manage them
• Uncertainties surrounding climate change
• Climate change will continue influence underwriting results
PricewaterhouseCoopers
15 January 2008
Slide 13
Global Insurance Banana Skins
Actuarial assumptions
• Tyranny of the actuary
• Accuracy of actuarial assumptions
• Skills
Longevity assumptions
• Rising risk for life insurers
• Pricing
PricewaterhouseCoopers
15 January 2008
Slide 14
Emerging Trends and Strategic Issues in South African Insurance 2008
• Interviews with managing directors
and senior executives during
February 2008
• Questionnaire – considers and
address the challenges facing the
industry
• Release in June 2008
PricewaterhouseCoopers
15 January 2008
Slide 15
Emerging Trends and Strategic Issues in South African Insurance 2008
Economic environment 
interest rates, inflation, currency and market
fluctuations
investment performance
Market 
image and reputation
competitive market
shortage of skills
consumerism
developing non-traditional markets
“Without doubt, one of the major challenges for the insurance industry in 2008
will be the retention of skills.” – Nick Kohler, Hollard.
PricewaterhouseCoopers
15 January 2008
Slide 16
Emerging Trends and Strategic Issues in South African Insurance 2008
“Getting to grips with the raft of new legislation planned for the financial
services industry will be one of the biggest challenges in 2008” – Mike
Harper, Old Mutual
Regulatory 
alignment of FSC and DTI code of good practice
credit insurance
commission regulations
demarcation between medical schemes and health
insurance
FCR and capital management
social security scheme
NCA
Strategies 
retain of existing customers
foreign investors
innovation
PricewaterhouseCoopers
15 January 2008
Slide 17
Industry Outlook 2008
Industry issue / challenge / development
High
Medium
Low
Legislation and regulation Image and reputation
Demarcation
Shortage of skills
Intermediary market
Climate change
Competitive markets
Distribution channels
New strategies
Motor insurance
Product development
Hardening in motor rates
Consumerism
Capital management
“The industry continues to face significant competitive pressure from new
entrants, particularly those using alternative distribution channels, primarily
bancassurance and direct selling.” Ian Kirk – Santam
PricewaterhouseCoopers
15 January 2008
Slide 18
Conclusion
There are unique challenges in the industry
• Regulatory developments and compliance
• Continued growth
• Realignment of distribution channels
• Design of products to suit the needs of the emerging market
• Meeting customer expectations
• Focus on bottom line earnings
but
This is an innovative industry that has responded well to economic challenges
PricewaterhouseCoopers
15 January 2008
Slide 19
Peer review
First
Products
Second
Third
2006
2004
2006
2004
2006
2004
Guardrisk
Guardrisk
Santam
Nova Risk
Hollard
Hollard
Assistance
business
Metropolitan
African Life
Sanlam /
African Life
Metropolitan
Old Mutual
Old Mutual
Credit Life
Hollard
Hollard
ABSA Life
ABSA Life
Regent
Charter Life
Group business
– Investment
Old Mutual
Old Mutual
Liberty
Sanlam
Investment
Solutions
Metropolitan
Group business
– Risk
Old Mutual
*
Sanlam
*
Momentum/
Liberty
*
Health
Discovery
Discovery
Momentum
Old Mutual
Medscheme
/ Old Mutual
Liberty
Investment
products
Old Mutual
Old Mutual
Momentum
Momentum
& Liberty
Liberty
Investment
Solutions
Life risk products
Momentum
Discovery
Discovery
Momentum
Liberty
Old Mutual
Property
(excl. motor)
Santam
*
Mutual &
Federal
*
Hollard
*
Motor insurance
Santam
*
Outsurance
*
Auto &
General
15 January 2008
Slide 20
ART
PricewaterhouseCoopers
*
Peer review
First
Other
Customer
relationships
Innovations
Marketing
strategies
Technically
competent staff
PricewaterhouseCoopers
Second
Third
2006
2004
2006
2004
2006
2004
Discovery
Discovery
Momentum
Momentum
Santam
Liberty
Hollard
Discovery
Hollard
Discovery
Discovery
Old Mutual
Discovery
Discovery
Outsurance Outsurance
Mutual &
Federal/
Santam
Discovery
Momentum Outsurance
Auto &
Liberty &
General
Hollard
Liberty
Momentum
15 January 2008
Slide 21
Thank you.
© 2008 PricewaterhouseCoopers Inc. All rights reserved. “PricewaterhouseCoopers” refers to the network
of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent
legal entity. PricewaterhouseCoopers Inc is an authorised financial services provider.
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