- 2016 Top global risks
- The new world of insurance
- Knowing when to Reinvent
- Discovery’s business model
- Pay attention to avoid financial losses
From the environment to international security and the coming Fourth Industrial Revolution, the World Economic Forum’s Global Risks Report 2016 finds risks on the rise in 2016. Oliver Cann reports
In this year’s World Economic Forum Global Risks Report 2016, almost 750 experts assessed 29 separate global risks for both impact and likelihood over a 10-year time horizon. The risk with the greatest potential impact in 2016 was found to be a failure of climate-change mitigation and adaptation. This is the first time since the report was published in 2006 that an environmental risk has topped the ranking. This year, it was considered to have greater potential damage than weapons of mass destruction (2nd), water crises (3rd), large-scale involuntary migration (4th) and severe energy price shock (5th).
The number one risk in 2016 in terms of likelihood, meanwhile, is large-scale involuntary migration, followed by extreme weather events (2nd), failure of climate-change mitigation and adaptation (3rd), interstate conflict with regional consequences (4th) and major natural catastrophes (5th).
Such a broad risk landscape is unprecedented in the 11 years the report has been measuring global risks. For the first time, four out of five categories – environmental, geopolitical, societal and economic – feature among the top five most impactful risks. The only category not to feature is technological risk, where the highest ranking risk is cyberattack, in 11th position in both likelihood and impact.
This diverse landscape comes at a time when the toll from global risks would appear to be rising. A warming climate in 2015 is likely to raise the global average surface temperature to the milestone of 1°C above the pre-industrial era for the first time. The number of people forcibly displaced in 2014 stood at 59.5 million according to UNHCR, almost 50% more than in 1940. Data from the report appears to support the increased likelihood of risks across the board, with all 24 of the risks continuously measured since 2014 having increased their likelihood scores in the past three years.
In addition to measuring their likelihood and potential impact, the Global Risks Report 2016 also examines the interconnections among the risks. Here, data suggests a convergence may be occurring, with a small number of key risks wielding great influence. All five of the most interconnected pairs of risks in 2016 accounted for more interconnections than in 2015. At the top end of the scale, 2016’s two most interconnected risks – profound social instability and structural unemployment or under-employment – account for 5% of all interconnections.
Knowledge of such interconnections is important in helping leaders prioritise areas for action, as well as to plan for contingencies. ‘We know climate change is exacerbating other risks such as migration and security, but these are by no means the only interconnections that are rapidly evolving to impact societies, often in unpredictable ways. Mitigation measures against such risks are important, but adaptation is vital,’ said Margareta Drzeniek-Hanouz, Head of the Global Competitiveness and Risks, World Economic Forum.
WHICH PANIC BUTTON TO PRESS?
Environmental risks have come to prominence in the global risks landscape in 2016, despite the presence on the horizon of a large number of other, highly visible risks. Income disparity, which was highlighted by the report in 2014, is this year reflected in the growing interconnections involving profound social instability and both structural unemployment and underemployment and adverse consequences of technological advances.
‘Events such as Europe’s refugee crisis and terrorist attacks have raised global political instability to its highest level since the Cold War. This is widening the backdrop of uncertainty against which international firms will increasingly be forced to make their strategic decisions. The need for business leaders to consider the implications of these risks on their firm’s footprint, reputation, and supply chain has never been more pressing,’ said John Drzik, President, Global Risk and Specialties, Marsh.
Geopolitical risks, one of which – interstate conflict with regional consequences – was 2015’s most likely risk, are also present: while interstate conflict has dropped to fourth in terms of likelihood, weapons of mass destruction ranks as the second most impactful risk, one place higher than last year and its highest ranking ever in our report.
‘Climate change is exacerbating more risks than ever before in terms of water crises, food shortages, constrained economic growth, weaker societal cohesion and increased security risks. Meanwhile, geopolitical instability is exposing businesses to cancelled projects, revoked licenses, interrupted production, damaged assets and restricted movement of funds across borders. These political conflicts are in turn making the challenge of climate change all the more insurmountable – reducing the potential for political co-operation, as well as diverting resource, innovation and time away from climate change resilience and prevention,’ said Cecilia Reyes, Chief Risk Officer of Zurich Insurance Group.
One potential black swan event could be in the area of technological risk. While cyberattacks rise slightly in terms of likelihood and impact in 2016, others, including failure of critical information infrastructure, appear to be declining as a risk in the eyes of experts. Technological crises have yet to impact economies or securities in a systemic way, but the risk still remains high, something that potentially may not have been fully priced in by experts. Our separate survey of business leaders assessing risks for doing business finds cyberattacks to be the top risk in no fewer than eight countries, including the USA, Japan, Germany, Switzerland and Singapore.
INTERNATIONAL SECURITY IN THE SPOTLIGHT
In addition to assessing the likelihood and potential impact of 29 global risks, the Global Risks Report 2016 takes an in-depth look at how the global security landscape could evolve in the future.
The report features the outcomes of a year-long study to examine current trends and possible driving forces for the future of international security.
Through its analysis of the interconnections between risks, the 2016 report also explores three areas where global risks have the potential to impact society. These are the concept of the ‘(dis)empowered citizen’, the impact of climate change on food security, and the potential of pandemics to threaten social cohesion.
RISKS FOR DOING BUSINESS
For the second year, the Global Risks Report also provides country-level data on how businesses perceive global risks in their countries. This year’s analysis uncovered patterns among both advanced and emerging economies. Unemployment and under-employment appears as the risk of highest concern for doing business in more than a fourth of the 140 economies covered, and is especially featured as the top risk in two regions, sub-Saharan Africa, and the Middle East and North Africa. The only region where it does not feature in the top five is North America. Energy price shock is the next most widespread risk, featuring in the top five risks for doing business in 93 economies. Cyberattacks, mentioned above, feature among the top five risks in 27 economies, indicating the extent to which businesses in many countries have been impacted already by this rising threat.
AUTHOR | Oliver Cann, Director, Public Engagement, World Economic Forum
This is an era of unprecedented change for the South African insurance sector. New technologies, new customer expectations, new regulations and new competitive pressures are rapidly disrupting the traditional insurance business model. In this environment, insurance organisations have no choice but to adapt. By Gerdus Dixon
The good news is that the vast majority of South African insurance executives know their organisations need to become more innovative and are acting on this.
During the 2015 results presentations, over the past few weeks, reference was often made to innovation, client centricity, and partnering with entities not burdened by legacy issues. More than ever before, board agendas and strategies are dictated by the need to place the client at the centre of the organisation and building the operations around customer needs. In the paragraphs below, we explore two of the areas where insurers have been particularly active in readying their businesses for the future, namely:
- FinTech alliances
- Embedding regulatory change for commercial benefit
FINTECH ALLIANCES
Nearly 70% of global insurers now believe that partnerships not in-house efforts will characterise the future of innovation for their organisation.1 In the new world, the competitive landscape is not necessarily defined by legal structures.
The organisational structures and cultures of many insurers are not conducive to achieving the type of real, sustainable and value-creating innovation needed to compete in this world.
Historically insurance business was developed and underwritten by insurers licensed and regulated as such. However, the rapid introduction of new technologies such as telematics and the importance of data and analytics, has demonstrated to insurance executives just how quickly the market could be disrupted by a ‘good idea’ or a non-traditional competitor.
Over the past two years the Financial Technology and Insurance Technology sectors (referred to jointly as FinTech) has emerged as one of the most active deal arenas for insurers around the world.
Yet the approach to driving innovation through FinTech partnerships is far from unified. Many of today’s more innovative insurers take a variety of approaches – often simultaneously – to secure the right portfolio of FinTech innovations. We see insurers collaborating with FinTech organisations to:
- Invest in cross-industry innovations
- Test new ideas in digital distribution
- Promote a digital culture in their own organisation
- Develop solutions for Big Data, mobile, social media and sponsorships
Ever since the commercialisation of the Internet, it has been clear that the right technology alliances can quickly and fundamentally change the digital distribution landscape in ways insurers alone could never have accomplished so quickly.
Finding the right technology partner is vital to advancing the process and adopting the right technologies.
For example, one global insurer recently formed a strategic alliance with Facebook to develop its footprints in digital, social and traditional media globally.
With mobile usage rates rising everywhere insurers active in the African continent are now looking to leverage mobile leadership by partnering with leading mobile organisations and local innovators.
On a continent with a very low insurance market penetration rate, where more than 90% of the population have mobile phones, this seems to be a logical step.
Using such a digital distribution strategy allows insurers to market differently considering the cultural nuances present in each of the African countries. But even for servicing existing customers, technology is quickly becoming the preferred route of engagement.
Tech-savvy customers enjoy greater efficiencies and feel more connected to their insurers and more confident about their product options. Moreover, they can easily access the information they seek, creating seamless opportunities and additional touch points for insurers beyond the annual renewal.
EMBEDDING REGULATORY CHANGE FOR COMMERCIAL BENEFIT
Regulators are moving towards a forward-looking, proactive, and judgement-based supervisory approach. This means increased focus on consumer outcomes and conduct regulators are not just interested in the control environment, they are interested in firms’ business models and strategies.
For example, regulators are looking at the key drivers of profit and whether consumers are being treated fairly in the sale of these products. Similarly, prudential supervisors are also increasingly looking beyond the boundaries of the regulated insurer to the wider group and holding company operations. New governance, reporting and capital requirements at a group level are a natural consequence.
These developments in the South African insurance market are commonly referred to as a regulatory tsunami. Whilst it is true that insurers are struggling to keep pace with the rapid regulatory change, it is interesting to note that often the more successful South African insurers have predicted, and even embodied these changes, in their business models well in advance of the legal implementation dates.
Increasingly boards of insurers are able to demonstrate that their governance procedures, especially with regard to risk culture, permeate all levels of operations, sales and management.
Some groups have also used the regulatory agenda as an impetus to clean up their group structures that have become too complicated to understand, and expensive to maintain.
As part of the strategic planning process progressively more insurers will challenge their business models and strategies using a client-centric lens.
Whilst this is good for business, it also warms the heart of regulators.
CONCLUSION
An increase in the acquisition by insurers of companies that bring complementary capabilities to the insurance sector should be expected.
Also look out for more partnerships that support and develop innovation and create infrastructure that helps reduce the protection gap.
There are major opportunities for insurers willing to invest in new technologies and embed a pro-active regulatory approach. Many organisations are already committing significant resources to the types of initiatives outlined above that will assist them to compete within a new world of insurance.
Note
- A New World of Opportunity: The Insurance Innovation Imperative, KPMG International, 2015.
AUTHOR | Gerdus Dixon CA(SA) is a partner at KPMG
No business survives over the long term without reinventing itself. Mark Bertolini, David Duncan and Andrew Waldeck discuss the five interrelated ‘fault-lines’ that executives should be able to detect, enabling them to prepare for and adapt to industry upheaval
In 2010, when Mark Bertolini became CEO, Aetna had 22 million medical policyholders, making it the third-largest player in the highly conservative health insurance business.
The Fortune 100 company appeared to be in a strong position: it had grown even during the 2008–2009 recession, when millions of people lost their jobs and their employer-provided health insurance, and it was prospering in the wake of the 2010 US Affordable Care Act, which imposed significant industry reforms. By the end of Bertolini’s first year at the helm, Aetna had achieved a 38% surge in year-on-year net income; it seemed impervious to disruption.
Yet during a pivotal series of board meetings early in his term, Bertolini began making a case for transforming the company into something beyond a traditional health insurer. He was driven in part by personal experiences that left him deeply critical of the existing health care system. But he backed up his intuition by telling the board of certain points that indicated a changing future: despite its profitability, the business of health insurance in its current form would soon disappear. If Aetna pursued only small changes, Bertolini argued, it risked either slow decline or disruption from new entrants – but if it transformed to take advantage of new opportunities, it could double its revenue by 2020.
How can a leader know that it’s time to transform a company? We have identified five interrelated ‘fault-lines’ that suggest the ground beneath a company is more unstable than it may appear.
Our intention in what follows is to explore each fault-line in turn and to explain how Bertolini and the Aetna board made the existential choice to reinvent the company just when its profits were soaring.
CUSTOMER NEEDS
For most of its 160-year history, Aetna’s customers were mainly large organisations – corporations, governments and other employers. Typically one person or a small department in each chose the health plan or plans for the entire organisation.
Bertolini recognised that the needs of his primary customers – benefits managers – were not as urgent as the needs of the insured.
Employers and consumers alike were starting to actively shop for healthcare services, and they were growing increasingly sensitive to price. To remain a major player, Bertolini realised, Aetna would have to develop products and services that directly targeted the affordability needs of end consumers.
To discover if you have a customer fault-line, talk to ten customers in each of three categories: your most profitable customers, your least profitable ones, and those you don’t currently serve. Try to discover the functional, social and emotional needs each group seeks to have fulfilled, along with the frustrations they feel when doing so.
PERFORMANCE METRICS
Aetna’s main performance metric had long been the degree of choice in policies offered to employers and institutions. Benefits managers sought the largest physician and hospital networks possible within a given cost range, so as to minimise complaints from employees that the doctors and facilities they wanted weren’t covered.
When Aetna recognised that its most important customer might soon be changing, it naturally saw that its way of measuring the value of its products and services would also need to change. Bertolini’s personal experience navigating health care confirmed his suspicion that Aetna’s primary performance indicators were not adequately connected to the needs of end users. Although the system offered lots of choice, it was impersonal, convoluted and costly.
As costs kept rising and premium hikes kept getting passed on to employees, Aetna realised that the industry needed to start measuring value as a function of three factors: improving the experience of care, improving the health of populations, and reducing costs. That was the definition of value that would matter most to future customers.
To ensure that you are using the correct performance measurements, hold a cross-functional internal working session in which you examine whether your metrics are consistent with the things your customers value most. Don’t be afraid to challenge the logic underlying each metric.
INDUSTRY POSITION
Companies that start out serving niches often expand to encompass more and more tasks. If others are moving into your space at a lower cost, it could signal the third fault-line. In other words, watch out for players that are beginning to do what you do.
Aetna faced disruption in its core business on two fronts. The first was from public and private health exchanges, which were central to the Affordable Care Act. Benefits consultancies such as Towers Watson and Aon Hewitt had become multibillion-dollar businesses by helping employers and employees navigate health care’s complexities.
Now they were building simple exchanges for consumers that directly pitted one health insurer against another.
Second, starting in about 2013 Aetna faced disruption from hospital groups and other providers that began taking on one of its historical responsibilities: assuming the financial risk of caring for defined populations of patients.
To determine whether your position in your industry’s ecosystem is risky, analyse startups, adjacent competitors, and historical partners and suppliers that have the potential to fill existing and emerging customer needs. To make the exercise more tangible, draw up a list of ten companies that are viable competitors.
BUSINESS MODEL
For Aetna, strong financial performance at a time when health care costs were escalating meant that its business model was serving the company but no longer working well for employers or end consumers.
The model involved setting policy rates to exceed the cost of claims. This practice was at the heart of the frustration directed at health insurers in 2010.
To see if you’re sitting on a business-model fault-line, map your current business model and assess how well it is primed to compete against emerging rivals and to deliver against new performance metrics.
TALENT AND CAPABILITIES
After pondering Aetna’s future and identifying multiple fault-lines, Bertolini came to believe that the company’s single biggest risk lay in talent. That’s why Aetna located its technology-focused Healthagen venture in Denver and Silicon Valley rather than in Hartford. In those places it could more easily staff the initiative with employees who were experts not at creating insurance policies but at developing software to manage, deliver and track patient health.
The following questions can help uncover a fault-line in your current capabilities and organisational structure:
- Will we be fulfilling customer needs that require new skills to be brought on board?
- Do we have enough emerging leaders who are excited by the prospect of transformation?
- Have our company and industry struggled to attract tech-savvy talent?
- Do the leaders of our business view talent as their responsibility, or is it relegated to HR?
Although the process of transformation may be long, examining fault-lines can give organisations the clarity to overcome the inevitable speed bumps and roadblocks along the way.
It can help leaders frame the challenge, build confidence among senior leaders and align stakeholders with the case for change – and do so years before the situation becomes so dire that there’s not enough time or capital to execute a new plan.
IDEA IN BRIEF
- The problem. No business survives over the long term without reinventing itself. But knowing when it is time to transform is difficult.
- The solution. Five interrelated ‘fault-lines’ can indicate that the ground beneath a company is unstable. Executives who are able to detect those fault-lines have early warning of impending industry upheaval and are better able to prepare and adapt.
- The principles. The fault-lines focus on the fundamentals: whether the business serves the right customers, uses the right performance metrics, is positioned properly in its industry, deploys the right business model, and has employees and partners who possess the required capabilities.
TALENT AND CAPABILITIES
After pondering Aetna’s future and identifying multiple fault-lines, Bertolini came to believe that the company’s single biggest risk lay in talent. That’s why Aetna located its technology-focused Healthagen venture in Denver and Silicon Valley rather than in Hartford. In those places it could more easily staff the initiative with employees who were experts not at creating insurance policies but at developing software to manage, deliver and track patient health.
The following questions can help uncover a fault-line in your current capabilities and organisational structure:
- Will we be fulfilling customer needs that require new skills to be brought on board?
- Do we have enough emerging leaders who are excited by the prospect of transformation?
- Have our company and industry struggled to attract tech-savvy talent?
- Do the leaders of our business view talent as their responsibility, or is it relegated to HR?
Although the process of transformation may be long, examining fault-lines can give organisations the clarity to overcome the inevitable speed bumps and roadblocks along the way.
It can help leaders frame the challenge, build confidence among senior leaders and align stakeholders with the case for change – and do so years before the situation becomes so dire that there’s not enough time or capital to execute a new plan.
© 2015 Harvard Business School Publishing Corp.
AUTHORS | Mark Bertolini is the CEO of Aetna. David Duncan and Andrew Waldeck are senior partners at Innosight, a growth-strategy consulting firm
Since starting as a small healthcare insurer in 1992, Discovery has been guided by a clear purpose, that of making people healthier. Over years, Discovery has utilised Vitality to develop a disruptive and unique insurance model. By Brett Tromp
This model is based on the combination of engaging policyholders and incentivising them to manage their wellness, and dynamically pricing their behaviour into their insurance. The model guides, incentivises, and provides policyholders access to a broad range of wellness and prevention pathways, and measures engagement clinically and actuarially, enabling the dynamic pricing of mortality, morbidity, and health risk. Protection product structures are then based on this dynamic pricing. This enables policyholders to be priced as ‘select’ lives at inception, and to have their premiums increased or decreased based on their engagement in Vitality and their wellness.
The impact from an actuarial and competitive perspective is dramatic. The model creates more value through lower price points and better benefits; attracts better lives; encourages positive behavioural change; and shows lower claims rates with better selective lapsation. Along with price competitiveness and a significant margin uplift, Discovery’s model continues to drive shared value: it delivers better health and value for customers, superior actuarial dynamics for the insurer, and a healthier society at large.
Discovery pioneered this behaviour-linked, shared-value business model in the insurance space and it has underpinned its success. In August 2015, Discovery ranked 17th in Fortune’s new index of 51 companies ‘changing the world’ – a curation of organisations which have made a substantial impact on major global problems as part of their competitive strategy. This has validated Discovery’s strategy to invest in the Vitality chassis to make it globally relevant.
CURRENT TRENDS THAT ARE MAKING THE BUSINESS MODEL MORE RELEVANT THAN EVER
In recent years there has been an acceleration of influential trends in the global insurance market. The nature of risk has become more behavioural and complex; technology is playing a bigger role and wearable devices are becoming more ubiquitous; and health promotion and disease prevention continue to become more personalised.
In addition, mortality and morbidity risk is changing, with lifestyle choices driving 80% of the disease burden and 60% of mortality.
The implications for the life and health insurance markets are substantial – static underwriting in which risk is evaluated at policy inception, based on pre-existing conditions at that point, overlooks the fact that much of the risk will be determined by choices the policyholder makes during the lifetime of the policy. This presents an opportunity for significant disruption.
Furthermore, the millennial generation demands more from the institutions that serve it.
This generation is more civically minded and has also experienced a loss of trust in institutions following the financial crises. Organisations that seek the patronage of millennials must demonstrate that they are a force for social good.
Finally, people are living longer, but in poorer health, and experience the Baumol effect – where healthcare inflation continues to outstrip wage inflation. These demographic, disease, cost, behavioural and technological trends make the business model more compelling than ever, and offer new opportunities for applying Vitality across the business model.
WORK TO REFINE THE SCIENCE UNDERPINNING THE BUSINESS MODEL
The Vitality model encompasses a number of wellness pillars, with a particularly powerful one being physical activity – since inactivity accounts for a large portion of the preventable disease burden, and physical activity often serves as a trigger for further health and wellness engagement. In the UK, Vitality has pioneered Vitality Active Rewards, and has seen early success in creating organic physical activity engagement.
These insights and developments, combined with the advent of wearable technology and the quantified self, have resulted in the refining of Vitality’s intellectual property, manifesting in a global product – Vitality Active Rewards.
This product tracks Vitality members’ physical activity and rewards them with real-time benefits from partners on the achievement of personalised physical activity goals. Vitality Active Rewards is a point of evolution in the Vitality model.
It combines personalised health pathways with the provision of wearable devices and everyday rewards to encourage positive behaviour change – placing Discovery at the forefront of insurance that is dynamic and tech-enabled.
Building on the success of the UK launch of Vitality Active Rewards, the South African launch of Vitality Active Rewards with Apple Watch saw unprecedented success. To date, the take-up and engagement levels in South Africa have been exceptional – over 160 000 Vitality members have signed up, with significant behaviour change illustrated by an increase of 21% in physical activity events per week. This makes it the most successful Vitality benefit launched to date.
The nature and trend of Active Rewards in the UK and Vitality Active Rewards with Apple Watch in South Africa are encouraging for the global business.
Vitality Active Rewards with Apple Watch is planned for roll-out in Discovery’s other markets over the course of 2016.
In terms of the science of the business model, Discovery is also working to improve the measurement of shared value to track progress.
This has already manifested in leading a growing movement to have health metrics integrated into corporate reports and working with the major bodies who report on environmental, governance and diversity factors and recognise their materiality similar to financial measures (for example the UN Global Compact, the Dow Jones Sustainability Index and the JSE).
In addition, Discovery has been building the empirical case for linking employer and corporate actions on health and those of public health and community actions, and are influencing the corporate space in measuring and tracking wellness as a measure of organisational health.
WORKING TO GROW THE SCALE OF THE BUSINESS MODEL
Discovery has two archetypes for entry into a market, these being primary markets, where Discovery owns and operates the insurer; or partner markets, where Discovery partners with leading global insurers to implement Discovery’s behaviour-linked insurance model and disrupt their respective life and health insurance markets.
In Discovery’s primary markets of South Africa and the United Kingdom the emphasis has been on building the model and using it as a platform to develop unique insurance businesses.
In South Africa, Discovery operates in the industries of health insurance; life assurance; long-term savings and investments; property and casualty insurance; wellness; and banking. In the UK, Discovery operates in health insurance and long-term protection.
Furthermore, through its partner markets, Discovery operates in the US in the standalone corporate arena through wellness programme products, in China through Ping An Health Insurance, and in Europe and Asia in the life assurance industries, as well as in Australia and soon in Canada.
The Vitality Active Rewards chassis is serving as a global infrastructure for the advancement of Discovery’s internationalisation strategy.
AT THE HEART OF THE BUSINESS MODEL IS DISCOVERY’S CORE PURPOSE AND ‘2018 AMBITION’
Discovery was founded with the purpose of making people healthier and this has shaped its development since. In 2011, Discovery set its ‘2018 Ambition’, to be the ‘best insurance organisation in the world that is renowned for excellence, innovation and financial strength, utilising powerful financial and behavioural structures that meet people’s complex needs in sustainable ways, and provides superior returns for shareholders that reflect the innovation margin. In addition, the organisation must be a powerful force for social good.’
This ambition was re-worked in 2015, and from a business-specific perspective, each Discovery business set the objectives of being number 1 in each market; and of offering exceptional service and insurance products that meet complex consumer needs while benefiting the business, customers and society.
The claim to Discovery’s ‘2018 Ambition’ was validated given:
- The trends confirming the Discovery business model (nature of insurance risk is behavioural and competitiveness of insurance companies depends on their ability to affect behaviour change; technology is an enabler in insurance, creating the ability to more accurately track and segment risk, and rewarding behaviour change; and a growing social responsibility for insurers given increasing complexity and evolving client needs)
- The significance of Discovery’s core purpose (to make people healthier and enhance and protect their lives) and the efficacy of the Discovery shared-value business model
AUTHOR | Brett Tromp CA(SA) is Chief Financial Officer at Discovery Health
PAY ATTENTION TO AVOID FINANCIAL LOSSES
In 2016, the short-term insurance industry will be under pressure to continue the double-digit growth of the last couple of years. More options are being introduced and are now available to consumers – especially when it comes to direct insurance. By Nazeer Hoosen
As insurers, we urge consumers to remain up to date with legislation and regulatory changes that are related to the short-term insurance industry. The regulatory environment around short-term insurance is constantly changing and therefore does require consumers to be aware of these changes, as the impact on policyholders can be significant. This is also the reason why it is vital for all consumers to ensure that they get proper advice when it comes to purchasing short-term insurance, as it is made up of a very complex product set.
As accountants and chartered accountants are invariably part of the higher-income earning group, their accumulated assets such as property, household contents and vehicles are considered to be of a higher value and this holds its own share of risks that need to be catered for. It is therefore vital for those within the accountancy industry to ensure that they have specialised short-term insurance policies in place that are tailor-made for graduate professionals’ needs.
As the nature of the short-term insurance industry is very complex, in-depth knowledge of the products and the regulatory environment is required to have a full understanding of what is needed when it comes to cover. It is therefore important to obtain quality professional advice from a broker. As brokers are trained professionals equipped to provide proper advice and guidance to their clients on which insurance policy will best fit their needs, consumers are guaranteed to have proper cover in place that will not leave them out of pocket when it comes to time to claim.
It is also crucial that professionals understand their insurance policy in order to grasp the context of their purchase and exactly what is covered under the policy. Any aspects of concern or queries the client may have then can be taken up with their insurer or broker to provide further clarity, as they understand the insurance jargon and will be able to explain these terms and conditions to the client.
Most consumers view insurance as a grudge purchase until an incident occurs and they realise the real benefit of the purchase. Many people also believe they can follow a one-size-fits-all procedure when buying insurance in the hope that a basic policy will cover them sufficiently. The reality is that any item valued over R2 000 must be specified in certain policies in order to be covered when taken out of the home. These include golf clubs, bicycles, jewellery and expensive handbags.
Furthermore, any portable electronic devices such as laptops, smart phones, cameras, iPads and other tablets must be specified on the policy regardless of the value. It is vital that the policyholder understands that exclusions do exist in many policies and therefore their broker has to explain these to them before they sign the policy.
Another aspect of insurance that many policyholders generally do not place a lot of focus on is the value that their assets are insured for, which places them at a risk of underinsurance at claims stage. A proper assessment has to be carried out before an insurance policy is finalised, especially for homeowners insurance. If at claims stage it is found that the home or contents are not sufficiently insured for the correct replacement value, the homeowner will be left with the financial burden of having to pay the proportional difference between the sum insured that is reflected in the policy and the actual replacement value of the goods.
Many consumers also don’t take seasonal risks into account when it comes to insurance. In winter most homeowners face an increased risk as wind, hail and thunderstorms are more frequent during winter months. It is important that homeowners know whether their policies cover damages related to natural elements that are related to storms, as the elements can cause devastating damage to a home and its contents.
It is also vital that homeowners conduct regular maintenance checks to their houses. When it comes to claims stage and investigation proves that damage occurred owing to lack of maintenance, it is likely that the homeowner’s claim will be rejected. Most insurance policies stipulate that it remains the homeowner’s duty to maintain the house in order to mitigate the risk and extent of the damage.
Insurance ultimately mitigates the policyholder’s risk and if the policyholder is able to consider the potential risks they face when it comes to loss or damage of a major asset, they will be able to appreciate their insurance policy. As a result, insurance is a must-have product in today’s environment where the value of consumers’ assets is growing, along with increased crime and car accident rates.
Professionals in the accountancy profession should take the time to reflect on the time and effort spent on building their wealth and businesses when they consider their insurance policies. Insurance exists to protect that accumulation of wealth and exposure to risks from events that are usually unforeseen and prove to be extremely costly at most times.
It is also vital that homeowners conduct regular maintenance checks to their houses. When it comes to claims stage and investigation proves that damage occurred owing to lack of maintenance, it is likely that the homeowner’s claim will be rejected.
PPS Short-Term Insurance recently transformed its business model to become a short-term insurer, which now means that the company is able to design and underwrite new insurance products that will provide solutions to address the evolving needs of graduate professionals. In addition, PPS is not listed on the stock exchange and allocates all its profits to its members with qualifying products on an annual basis, by way of allocations to members’ PPS Profit-Share Accounts. The new short-term insurance offering will in due course also add to these profit allocations.
AUTHOR | Nazeer Hoosen is CEO of PPS Short-Term Insurance Company
