By: Francois Schaap, Managing Director, Guardrisk Life and Ryno Van den Berg, Managing Executive, Guardrisk: Volume
The underwriting disrupters – changing the face of the life insurance industry
Over the last few years, the words “disruption” and “disrupters” have gained momentum and become a big part of the financial services industry, particularly in the insurance space. These days insurers are becoming banks, banks are becoming insurers, retailers are becoming banks and insurers and individuals can buy directly tailor-made insurance offerings with decreasing premiums.
The financial services industry has, during the past number of years, seen an increase in individuals who were traditionally employed by large insurance companies, leave the company’s employ, to start their own niche specialised financial services businesses.
The reasons for this growing exodus are based on the increased financial literacy of the man on the street. Customers have become increasingly demanding and will take nothing less than differentiated and bespoke services and products that suit their specific needs on the spot. Technological advancements have also played a major role in boosting consumer savvy. Not only are consumers sharper, but now organisations have the opportunity to engage directly with their clientele, and find out exactly what their needs are.
These “disrupters” spot the gaps in the market, realise that they can close these gaps with their expertise, and seize the opportunity to capitalise on them. Their solutions based model has been very successful, and they have become insurance companies in their own right.
As brilliant as these ideas and innovations are, these entrepreneurs generally do not have insurance licences, which come with high capital charges and onerous legal and compliance obligations. This is where cell captive companies and underwriters, like Guardrisk, come in.
Guardrisk’s cell captive structure provides all the benefits of owning an insurance company, without the inherent cost and administrative implications. This includes providing underwriting, reinsurance, claims management, investment and accounting functions to cell owners, which keeps costs down and gives access to a broad base of insurance skills.
The insurance industry had always leaned toward providing Affinity products (allowing companies to provide insurance under their own brand name), but now, these innovators have given rise to Volume products (non-affinity branded products), where both life and non-life insurers are underwriting products and services – not brands, allowing for great growth in the industry.
Looking at the life insurance space in particular, we’ve seen incredibly innovative ideas and product offerings and distribution capabilities that make us think, “How did we get by without this in the first place?” For instance, if two people take out the exact same retirement annuity, should they receive the same monthly payment if one’s life expectancy has been calculated to be substantially shorter than the other? There are now companies remedying this, offering enhanced bespoke annuities for sub-standard lives. Others have come up with specialised dread disease covers, automated life products with fulfilment done electronically, and even an aggregate credit life consolidation product. This is the definition of differentiation.
As in many other first world jurisdictions, the South African financial legislation, is battling to keep up with this rapid development in the digital and technology space. These newly developed capabilities have the potential to bring financial products to millions of previously “unbanked” people at a fraction of the traditional cost. The regulatory dilemma is to balance generally outdated rules and laws with the significant enhanced customer experience that these new capabilities bring – already we are seeing legislation, still in draft form, which may be outdated the day it gets signed into legislation. Law makers and regulators need to ensure that they create a fair and equal regulatory framework and environment that allows these entrepreneurs to have the opportunity to participate and succeed in the industry.
We see this as a huge win for the consumer space, as well as for the industry. These new entities do not necessarily take business away from the traditional insurance companies, but rather, add value to the retail industry by increasing the pool of products and services, as well as improving existing products and services. All industry players win, and most importantly, the client walks away with a host of products and services that cover them completely. This is not about the one or the other, but rather how new technology and traditional insurance principles can supplement and support each other to ensure a much improved customer experience.