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Banking
Tuesday, July 1, 2008
Growth to continue

Bancassurance continues to be an integral part of the banks’ business in South Africa, following strong growth in 2006 and 2007. Despite current economic trends and the implementation of the National Credit Act (NCA) a bancassurance survey conducted by RGA Reinsurance Company of South Africa Limited points to continued growth in the market — albeit at slower rates than in previous years.
The 2008 RGA bancassurance survey builds on research commenced 2006 and considered the impact of the NCA and the Life Offices’ Association’s Consumer Credit Inquiry (CCI). The survey was conducted online with 14 respondents from all the major banks and life insurers in South Africa accounting for total premiums of R5,4 billion in 2007.
Key findings indicated that, despite the prevailing economic conditions of rising inflation and higher interest rates, there was significant growth in the market up until the end of 2007. “The area that has experienced the least growth is the vehicle finance sector,” says Bernard Ross, Executive Director at RGA. “The 2006 survey highlighted growth in this sector of the market of 70% per annum compared with current annual growth of only 6%.
“This is largely due to the introduction of the NCA and the effect of rising interest rates on an individual’s capacity to afford credit,” he explains. “The personal and micro loan sectors also experienced slower growth in 2007 but are still expanding at more than 50% per annum. However, it is clear from the findings that the NCA, worsening economic conditions and the resultant tightening of the credit cycle are having an impact on the sale of credit life business.” Motor car sales are falling, for example, with significant reduction in deals the second half of 2007.
The effects of increased regulation were also highlighted by participants in the survey. “The full effects of the NCA were felt by the industry during 2007, with a number of respondents reporting a decrease in credit life business,” he adds. “However, this was not all due to the NCA, as a number of insurers and banks also attributed the slowed growth to stricter qualifying criteria and internal controls implemented by the companies.”
For funeral and complex underwritten business, none of the participants reported integrated processes with the distribution channel in the bank. This is an area banks and insurers are aiming to improve on. For traditional credit life products 75% of participants indicated integrated processes.
The survey also highlighted an increase in the number of policies not taken up within the 30-day grace period. Ross attributes this to the fact that there is greater disclosure at the policy inception stage. “The NCA has resulted in lower premium levels as single premium business is no longer allowed. This shift to a recurring premium structure, required by the NCA, has meant that insurers are shifting focus towards processes in order to increase penetration rates, as well as managing the lapse risk associated with recurring premiums.”
The CCI report raised various issues pertaining to the deregulation of commissions, the need for consumer education awareness and regulation of credit insurance by the National Credit Regulator. “Issues that remained unanswered pertain to fair pricing and insurers creating better value for customers’ money,” says Ross. “At this stage the National Credit Regulator is looking toward industry self-regulation on these matters. This should make for a more competitive bancassurance market through increased competition and cheaper rates for credit insurance.”
The accompanying table shows the products on offer through bancassurance channels. The first row shows that mortgages at 21% of the total of 53 products to be the biggest business. The second row shows that 79% of the 14 participants in the survey conducted mortgage business.
In general microloans and credit card business tended to be issued automatically without any underwriting; vehicle finance was showing slightly more underwriting being conducted than before; while funeral appears to be issued with basic questions. While microlending is seen as the ‘worst risk’ it actually enjoyed the best experience.

Copyright © Insurance Times and Investments® Vol:21.6 1st July, 2008
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