Insurance sector has much to gain from outsourced services model

Investors have long viewed the South African life assurance sector as a sure thing: the sheer scale of assets under management in these organisations, and their annual premium and investment revenue make them a perfect vehicle for long-term returns.

However, the industry must remain vigilant and constantly reinvent itself if it is to unlock value for policyholders and shareholders in years to come.

A major challenge they face is the need to control and reduce costs without hampering business processes or customer satisfaction. Indeed, improving the customer experience is vital if insurers are to retain satisfied clients and attract new ones.

Sadly, while all companies try to create good customer experiences, the legislative environment in South Africa has hampered this goal. While companies are required to comply with new regulations, such as the recently passed National Credit Act (NCA), the burden of compliance is adding to the complexity and expense of doing business, not to mention making the customer experience more unpleasant and time-consuming.

The idea behind the NCA was to make the process of obtaining credit more even-handed and less costly for consumers. In reality, consumers are less likely to be granted credit and those that get it end up paying more because the cost of administration is higher than ever.

There are already rumours in the market of industry players presenting a united front to government to highlight the problems the NCA has wrought. Because the process of vetting credit applications is longer and requires more documented input from applicants, the costs have risen.

The people who were supposed to benefit from the new regulation, consumers, now also have to carry this cost.

In addition, while paperwork is and always has been critical, these regulations are causing a documentation nightmare. With the Financial Intelligence Centre Act (FICA), for example, demanding even more paperwork for almost everything the customer wants to do, SDT Financial Software Solutions feels it may be time for the industry to consider a combined services solution.

The local life assurance industry can learn from international examples and, while not opting to send customer data offshore, look at a centralised services arm to fulfil the administrative tasks common to all players.

A central organisation focused on collecting the required compliance documentation (such as proof of residence or income) for multiple life assurers will ease the administrative burden on these organisations, and reduce costs. What's more, customers will benefit from such a solution, as they will have to present their information just once. The service centre will verify it and this information will then be available to any other companies needing verification for FICA or other legislation.

A centralised, outsourced service such as this could be owned by all the industry players and run as an independent company. It need not be profit-driven, but run as a cost-cutting exercise that will benefit the consumer and the industry.

An outsourced services offering would not be the first time South African life assurers have addressed a challenge with innovation. Years of experience in streamlining and tailoring products and processes to this market will stand companies in good stead as they move into Africa.

South African life assurers don't necessarily know all about doing business in Africa. Each market has its own unique characteristics. There will, however, be administrative processes that are generic and to streamline the implementation of these by learning from the mistakes made in South Africa would be smart.

Local organisations must also keep up with movements in the international life assurance market as there is much to learn. Some of these markets are going through similar issues. For example, the UK industry is also grappling with how to create a compulsory pension scheme to ensure its retired folk, who are now living longer, don't place an intolerable burden on the government. South Africa is engaged in a similar process and should be aware of and learn from what is happening there.

The South African life assurance industry has many successful years behind it, but it cannot rest on its laurels. As the country changes, the industry will have to keep pace and change with it, potentially competing with international giants in South Africa and in the rest of Africa. The need to streamline business processes while reducing costs and improving service levels must be given constant attention to ensure it can deliver sustained value to policyholders and shareholders.

By Freda du Toit, director of SDT Financial Software Solutions