Brokers shrug off recession backlash

1/29/2010 12:40:01 PM

SA’s insurance brokers have displayed remarkable resilience during the global economic downturn, with many increasing their focus on clients’ needs, applying greater innovation and improving operational efficiencies.

Pieter Bester, GM Broker Services for Sanlam, says: “Brokers had to work twice as hard to secure business last year without any real increase in their remuneration. The cost of doing business for brokers also increased, with a hike in fuel prices and higher administration costs.”

The broking fraternity includes independent financial advisers, banking industry brokers and brokers employed by corporations.

“Sanlam did not experience a marked increase in the number of contracts terminated as a result of brokers leaving the industry. We found a resilience among the broker force in the independent financial market during 2009 which I believe is good news for the insurance industry overall.”

Bester says Sanlam — which he describes as an advice-driven distribution business — has formed alliances and introduced initiatives and systems over the past three years to assist brokers to manage their practices more efficiently and to deal with the challenges of compliance.

“As a result, many brokers have been able to manage their practices more effectively — and Sanlam has also benefited.”

Bester emphasises that innovation in the investment market in particular in terms of benefits and fund options offered by linked investment companies such as Glacier by Sanlam for example, resulted in a fairly good investment year in 2009 despite the adverse effects of the economic recession.

“This is because there is a wide variety of options available to clients to enable them to hedge during periods of downturn. Obviously this comes with a certain amount of complexity — the more options, the more the complexity. This is why clients, particularly in the investment market, are looking for expert advice.

“To this end we have a segment of brokers in SA who continue to do an excellent job in providing such independent advice.”

Bester says that there has been a considerable movement towards enhanced risk benefits in life cover and disability products in the South African insurance industry.

“The cost of cover has reduced significantly over the past decade and in the past two years we have seen the industry becoming increasingly competitive with regard to risk products.

“This is especially so from a price perspective, with many companies offering special options to clients to enable them to top up their existing benefits.”

Bester cautions, however, that while it is advantageous to update a portfolio and to be adequately underwritten at the point of inception, clients should be wary of adding undue frills, bells and whistles to their portfolios.

He says these features sometimes add very little value, are very complex and can only be properly assessed by the insurer at the claim stage, which can result in client expectations not being met.

As specialists in the insurance field intermediaries are required to understand a client’s risk or business and advise on mitigation of these risks, says Seamus Casserly, president of the Financial Intermediaries Association of Southern Africa (FIA).

“But the real skill is not necessarily vested in the premium negotiated but rather in the conversion and transferral of risks into an acceptable contract with which both parties are comfortable. This is the qualitative value enjoyed by most corporate businesses and the reason they generally use financial services intermediaries.”

Casserly says that, broadly speaking, clients do not read their insurance policies or contracts. They presume that they are “comprehensively” insured and rely on comment, their own understanding, common practice and verbal communication to convince themselves that the policy entered into insures them adequately and thoroughly. Using an intermediary frequently removes a significant portion of this onus from the client and charges the intermediary with the responsibility of communicating accurately.

“The opportunity for matching cover with expectation is outsourced with recourse to the intermediary if the contract or policy fails to respond. The use of an intermediary is therefore part of the risk mitigation process that all clients would want to apply. It’s a bit like installing a burglar alarm or appointing an attorney to draft a contract.”

This is as applicable to personal risks that individuals face as it is to commercial businesses, he says.

In dealing with risk, all intermediaries are obliged to stay current with insurance industry developments, the statutory environment and global trends. There is constant change within the industry and the professional takes pride in evaluating the impact and informing clients appropriately, says Casserly.

The insurance industry is fluid and must adapt to these changes, hence the establishment of specialist units, the launch of new products and the emergence of risk-related trends, he says.

The question to ask is how does your insurance portfolio respond to these changed circumstances and is it possible to transfer some of the risk to ensure effective management. This debate is not about premium but more about risk, Casserly says.

“South Africa is fortunate to have a number of world-class, innovative, professional intermediary businesses, both small and large.

“Our statutory oversight is top notch and our country presents a range of business opportunities from the highly technologically driven, complex industries to an emerging market client base that requires cost-effective products.

“There is no single supplier that will ever be capable of satisfying this diverse range of needs, but a professional intermediary is best positioned to supply the most appropriate solution,” says Casserly.