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Short-term brokers are still upbeat

Monday, May 14, 2012

One of the ways to assess the state of an economy is to consider the daily news flows. In recent weeks South African consumers have been bombarded by stories about e-tolling, the so-called secrecy bill, rising fuel costs, the looming battle for power among the country’s top law enforcement officials and corrupt politicians among others. We are repeatedly reminded about the erosion of our buying power (through rising costs) and the erosion of our democratic rights (due to attacks on the judiciary and ill-informed political appointments). Insurance brokers are sensitive to changes in consumer sentiment on two fronts – as consumers – and as professionals servicing consumer needs. How are brokers holding up against the tide of negative news?
A good indication of short-term insurance broker confidence is the CIB Broker Confidence Index (BCI), which measures the confidence levels of insurance brokers on a number of issues concerning the domestic economy and insurance industry. Although brokers remain upbeat about domestic business conditions, as confirmed by the 61% Q1 2012 BCI score, there has been a slight decline since Q4 2011. The broker experience is borne out by the South African Chamber of Commerce and Industry (SACCI) Business Confidence index, which declined by 1.4 index points in April this year, following declines of 3.8 points in March. The latest business confidence measure is some 8.2 points shy of the April 2011 level.

Opportunities to expand short-term business

Short-term insurance is viewed as a grudge purchase and consumer interaction with short-term brokers is correlated to domestic economic activity. That’s why 31.7% of respondents to the latest CIB Broker Confidence survey singled out the economy as the biggest driver for the short-term insurance industry over the next year. If the economy fires then insurance business will be up! But under the “struggle on” scenario described by many economists, new business will be difficult to secure. A similar number of brokers indicated that improving access to new demographic markets would bolster insurance business through 2012. The industry should prosper as more South Africans purchase personal lines covers for their personal belongings and motor vehicles.

Douglas Donnelly, CEO of CIB Insurance Administrators welcomed the latest survey results, saying there were positive signs that brokers expect a gradual improvement in the South African economy over the next 12 months. The survey also revealed that brokers remain confident that business conditions for the local insurance industry will improve over the next 12 months, recording confidence levels of 63% for Q1 2012, similar to those at the end of 2011. Their upbeat view for both the domestic economy and short-term insurance sector carried through to individual books of business too.

Most brokers remain confident in their ability to retain their existing clients. An impressive 78% (down two percentage points since the final quarter last year) of respondents indicated that their existing books of business were “safe”. Donnelly does not think there is any reason for concern: “Despite the slight decrease in confidence when it comes to retaining existing clients, the levels remain high.” Brokers recognise it is easier to retain existing customers than sign on new business – and that’s good news for the insured! Tough economic times mean that consumers can look forward to improved service and pricing from both broker and insurer.

The hunt for new business premium

Short-term insurance brokers cannot afford to be complacent. Regardless of the prevailing economic sentiment they have to actively canvas for new business at all times. When asked where the bulk of their 2012 business would originate from, 67.6% of brokers indicated individuals, followed by Small, Medium and Micro Enterprises (19.8%) and corporations (12.4%). This result confirms that households contribute the bulk of short-term insurance brokers’ “bread and butter” on a month to month basis.

Some 47.8% of short-term broker respondents singled out complying with new legislation and regulations as the biggest ongoing challenge to their businesses. “This is probably due to the fact that the Financial Services Board (FSB) regulatory exam deadline has not been shifted, as was expected by many brokers,” opined Donnelly. “As all exams will need to be completed by June 2012, this looming deadline is causing some uncertainty amongst brokers.” A consequence of not passing the exam will be that brokers are not able to continue servicing their clients.

Other legislation that could impact on short-term brokerages includes Treating Customers Fairly, the Consumer Protection Act, new Binder Regulations and the pending insurance Demarcation Regulations. “Despite new regulations and some caution with regards to the economy, brokers continue to be upbeat about business conditions in South Africa. The consistent confidence levels are a good indication for the short-term insurance industry and is reassuring for the remainder of 2012,” concludes Donnelly.

Editor’s thoughts: The South African economy has spluttered along since its 2008/9 brush with recession. But as we progress through 2012 it appears businesses are “struggling through” rather than “shooting the lights out”. Households – which account for approximately 60% of domestic GDP – are under severe pressure! Given how local consumers are struggling, are you upbeat about prospects in your short-term brokerage this year? Add your comment below, or send it to

by FA News