The consumer landscape in South Africa has experienced unprecedented change in the last few years, which has created the need and opportunity for previously specialised product and service providers to diversify and offer time-strapped, increasingly educated consumers the convenience of ‘one-stop shopping’ across a broad array of offerings.
Customer demands have forced a broad restructuring movement in the country. Product and service providers have for many years focused on their own, traditional functions.
Take for example the large, listed companies in South Africa such as furniture and insurance companies; they sold furniture and insurance, creating highly successful businesses in both regards.
However, what we’ve seen lately is a cross-invasion of these traditional functions, with retailers offering insurance products and insurers selling life cover through traditionally consumer-focussed channels, such as cellphone airtime.
This change in traditional function is most evident in the financial sector, through the convergence of financial services.
Merger and acquisition activity in South Africa has increased drastically over the past decade, and the provision of financial services is a continuing evolution, taking place right before our eyes.
The number of financial institutions is declining sharply, while their functional distinctions are being eroded, and evolution is tending towards large entities with all-purpose functions, with the banking sector leading the way in South Africa.
In a drive to offer customers greater convenience through an expanded range of integrated, customer-oriented financial products and services, as well as growing existing business, banks have created a ‘one-stop shop’ for banking, investments, estate planning and insurance products.
These new lines of business have experienced great success to date, with bancassurance proving to be extremely successful and a key area for further growth in 2008.
In terms of growing insurance and bank business, it makes financial sense that once a customer is on the books, it is more cost-effective to aim for a larger share of that person’s total financial needs rather than to attract more customers.
Then there is also the opportunity to use this wealth of information, collected through a range of different product offerings to the same customer, to better rate individuals through improved risk profiling.
For example, consider smoking status and alcohol consumption information used for underwriting life insurance, which could now also be used by a consolidated insurance provider to more accurately price short-term insurance risks.
Further growth in the bancassurance market in 2008 and beyond lies in the increased sale of branded, complex life products.
The process-driven approach generally adopted by banks in their core business of banking creates an opportunity to sell complex life products to consumers in a more customer-friendly environment.
However, success will hinge on the banks’ ability to ensure the efficiency of these processes, sufficiently addressing intermediary or alternative distribution channel needs, as well as their ability to bridge the gap between credit life and complex life products.
The South African group market is another area that has started and can continue to benefit greatly through increased integration.
Integrated group benefits ensure that the employer benefits from a healthier workforce, lower absenteeism rates, and increased productivity, while the employee faces a lower risk of reduced income or even a loss of earnings.
In addition, costs are reduced as duplication in administration and cover is removed, while acute, treatable conditions can be identified and resolved before they develop into chronic conditions that can result in high treatment costs and absenteeism.
The integration of financial products and services is therefore the next evolution in the growth of the insurance industry.
If implemented correctly, supported by strong product development and the integration with existing distribution channels, it can have a great impact on the top and bottom lines of the financial sector in South Africa.
Grete Kritzinger is Business Development Executive at RGA Reinsurance Company of South Africa Limited
Comments