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Slowing SA economy leaves SA brokers increasingly concerned – Survey

Tuesday, August 28, 2012

The latest CIB Broker Confidence Index (BCI), which measures the confidence levels of South Africa’s short-term insurance brokers, has revealed a further decline in confidence on whether brokers believe they will retain their existing clients or attract new clients over the next 12 months.
The second quarter survey revealed that 75% of brokers believe they will retain their existing clients, down 3 percentage points from the first quarter. Confidence in attaining new clients over the next 12 months fell 7 percentage points to 65% from the previous three months.

According to Lisa Teixeira, COO at CIB Insurance Administrators, the results reflect the fact that brokers are growing increasingly concerned about the impact of the economy on their business. “The South African economy has already been shown to be weakening so far this year, with employment also falling short of expectations. Brokers are clearly concerned that this combination may lead consumers to reduce or cancel their cover.”

The recent Adcorp Employment Index revealed that employment stalled in July, growing at an annualised rate of just 0.23%, following sharp declines of 3.1% in May and 2.0% in June. This followed news from Statistics SA that the economy grew by just 2.7% during the first quarter, slower than the 3.2% at the end of 2011.

In fact, the CIB BCI also revealed that confidence in the outlook for the South African economy over the next 12 months remained unchanged, at 61%, while confidence regarding an improvement in business conditions for the local insurance industry fell 2 percentage points to 61% in the second quarter.

Reflecting concerns over the fate of the South African consumer, 62% of brokers believe that the bulk of their business will come from individuals over the next 12 months, down from 67.6% in the previous three months. Instead, brokers expect more business from SMMEs, at 26.8% up from 19.8% previously.

Of the biggest challenges facing their business over the next 12 months, complying with legislation remains the biggest concern at 39.5%, though this is down nearly 8 percentage points from the previous quarter.

“This could be attributed to an acceptance of the regulation activity and the fact that quite a few of the brokers have now written and passed their relative RE exams,” comments Teixeira.

Concern about the impact of direct insurers on the short-term insurance industry, on the other hand, is rising steadily, from 19.1% during quarter one, 2012, to 23.8% during quarter two. When looking at year-on-year figures, this is as compared to 17.0% and 18.0% during quarter one 2011 and quarter two 2011, respectively.

In addition, concern about the impact of the economy scored 28.7% during this quarter, up from 25.2% during quarter one 2012.

“There is clearly serious unease among South Africa’s brokers about the impact of the economy on their businesses and on consumers’ financial stability, as well as from competition from direct insurers. This is in line with our awareness of the increasing activity from the direct insurers and the fact that there are more and more players almost daily. However, there is now a trend among direct insurers to include the life side of insurance and even some who are eyeing out the broker channel as an alternate distribution model. We await to see whether brokers will indeed see more business coming in from SMMEs over the months to come,” concludes Teixeira.

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