Despite the challenges that the affinity insurance market faces in terms of having to grapple with increasing legislative and compliance burdens, there is no doubt that, especially in the South African context, the affinity business model has considerable merit in being able to provide high volume, low margin insurance products – not only to enhance retailers’ and other affinity groups’ offering to their client bases, but also to provide access for all South Africans to the insurance industry.
Affinity groups have traditionally found a good fit in the alternative risk transfer (ART) market, especially in terms of cell captive insurers where the affinity group can access the cell captive’s product development, underwriting, claims management, investment and accounting skills – not to mention legislative and compliance experience – all the while retaining control over the quality and content of the offering presented to their client base. The value of the latter cannot be under estimated, especially in today’s business risk environment where reputational risk is one of the biggest and potentially most damaging risks that companies have to deal with.
Internationally, one of the fastest growing trends in affinity markets is delivery via the Web, which has provided a new distribution platform, enabled more efficient and effective administrative platforms and revolutionalised service capabilities.
While South Africa tends to lag behind in terms of access to the Internet, there is no doubt that access is rapidly increasing and that, especially for younger South Africans, the Web is the way to go in future. While a 2007 study showed that a total of 3,85-million South Africans – a mere 8% of the population, or 1 in 12 people – had access to the Internet, the consultancy that conducted the study predicted that the influx of new players in this space would have a “massive impact” and that “by 2010 we can expect to see a substantially altered connectivity landscape”. The same consultancy’s 2008 study showed that, in 2008, the Internet user base in South Africa experienced its highest rate of growth since 2001, increasing by 12,5% to 4,5-million.
That connectivity continues to increase significantly is clearly evident by the extent to which local retailers (who account for the majority of affinity business in this country) have already embraced the Internet, using it for everything from monthly account delivery to marketing of new core products and special offers.
The trend towards on-line marketing also suits consumers who are fed up with the constant deluge of direct mail and telemarketing that affinity groups traditionally employ to sell their products. At the same time, the Web is increasingly becoming the first place that people turn to when seeking information, thus it stands to reason that they would intrinsically be more amendable to offerings via a channel that they already trust.
The trend towards marketing via the Web could further cement the fit between affinity groups and the ART market. Cell captive insurers are, by their very nature, fairly leanly staffed and tend to rely heavily on technology in their own service delivery, thus they would be well-placed to make the leap to their affinity clients’ move towards Web distribution.
Legislators should also be pricking up their ears, taking note of the shift towards the Web as a distribution platform. While South Africa’s consumer protection legislation is among the best in the world, it is largely geared towards traditional distribution channels. In future, legislators will have to turn their sights towards the Internet to ensure that consumers enjoy the same levels of protection in this new marketing environment.