Credit Life regulations and reactions (1)

Credit Life regulations have been live for long enough now that insurers are starting to feel the impact and the shake-up of amongst industry players is starting to emerge.

There have been plenty of debate around the regulations, in part because of the dramatic financial and operational impact they will have, and partly because of how imperfectly worded they are and the scope for interpretation.

I’ll be posting about this more in the coming days.

Basing the premium on initial or outstanding balance

First, a real anomaly is the ability for insurers  to charge the capped premium rate either on initial loan balance or on the declining outstanding balance.

There are good practical reasons to want to charge a single, known amount to policyholders. It is easier to administer and policyholders have greater clarity on what they are paying. Continue reading “Credit Life regulations and reactions (1)”

Current and future state of bancassurance in SA

Bancassurance, says the oracle or finance definitions online (aka Investopedia) is :

…is an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank’s client base. This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer bases without having to expand their sales forces or pay commissions to insurance agents or brokers.

Bancassurance has been a major part of European and Asian insurance markets and, for a time, was presumed to be the future of insurance distribution in most countries around the world.

What happened was different. Bancassurance has not taken off in all markets the same as it did in the early success stories. Some of this has to do with the reversal of trust relationships between banking and insurance. Continue reading “Current and future state of bancassurance in SA”

South Africa ranks 2nd in financial inclusion study

The Brookings Financial and Digital Inclusion Project measures South Africa one place behind Kenya in terms of financial inclusion.

I’m still working my way through the full report, but Kenya’s score is a significant jump above South Africa and the closely contested positions below it. Is Kenya genuinely making such inroads or is this a function of the measures used?

Progress on tax free savings vehicles, but scathing words for life insurers

Read the latest (14 March 2014) document from National Treasury on tax free savings vehicles for South Africa. I think it’s a fantastic idea – both from a policy perspective with carefully designed incentives to promote long-term savings and from a personal perspective. I’m definitely going to use one for my own savings. However, one paragraph stuck out as a pretty clear message from National Treasury on their views of life insurers – and views on current product offerings rather than any historical sins:

Insurance products

Products must permit flexible contributions and may not bind individuals into any future contribution schedules. Many insurance investment policies would currently not match these criteria. Government is not open to providing a tax incentive for products that have high charges and may have an adverse impact on household welfare at the point at which the household is increasingly vulnerable. In this regard some savings products, for example endowment policies and any similar investments that include excessively high penalties in the case of early termination of the policy, pose a policy challenge from a market conduct perspective and will not be allowed in these accounts.
As discussed, National Treasury will engage with the FSB and industry in determining a reasonable approach to charges and early termination.

 

Wow. I know there are many bad insurance products around and probably some still being sold. I also know of many insurance executives who strive for value for money and are reinventing products and distribution channels to this end.
Seems to me NT isn’t yet on board.

e-reader (reader) demographics changing

Bain performed research on current and likely future demographics of e-reader users.

The current situation:

early adopters of digital reading devices and multipurpose tablets mostly are already heavy readers. In numbers, they are more often men than women. They also describe themselves as more affluent than average and tend to be in their 20s and early 30s. This group values the flexibility of reading in different settings and the new devices’ ease of use

Their view of the future:

Readers who told us they are considering purchasing digital devices in the near future are mostly women and are older than 35 years of age.

and

Books won’t go away any time soon. Several indicators from the study show why. First, respondents who have adopted digital formats say they continue to read printed books. This attachment to paper formats also holds for younger generations, even though they were born in the digital era.

Some of this makes sense to me. Obviously my own direct experiences are of South Africa rather than the developed markets surveyed by Bain. I see more and more Kindles on JHB-CPT flights, exactly the demographic that can afford and most values the portability of the Kindle.

It’s fairly obvious that heavy readers will be more likely to purchase an e-reader since they would be more likely to purchase books, read books and ultimately see the value in an e-reader, so no surprises there. The youngish demographic also makes sense as early adopters are typically younger and less wedded to lifetime patterns. Affordability and competing devices (PSPs, iPads, iTouches etc.) with more game options and broader entertainment possibility limit teenage adoption of the devices.

And in South Africa?

My limited, ultra-informal sample from flights in South Africa showed a split between men and women not much different from typical air-travellers, but a demographic closer to 40 than 20 to 30. Continue reading “e-reader (reader) demographics changing”

Not growing up

The New York Times has a fascinating article about “Why are so many people in their 20s taking so long to grow up?“. It deals with the broader issue of how and when young adults move through phases of adulthood and how this has changed over the last 40 years.

It’s based on US research, so the parallel to South Africa isn’t perfect. On the other hand, it may prove predictive for our population.

A few snippets (it’s a long article, but well worth reading the whole thing):

  1. The median age at first marriage in the early 1970s was 21 for women and 23 for men; by 2009 it had climbed to 26 for women and 28 for men
  2. Definitions of adulthood vary widely – people can vote at 18, but in some states they don’t age out of foster care until 21. They can join the military at 18, but they can’t drink until 21. They can drive at 16, but they can’t rent a car until 25 without some hefty surcharges. If they are full-time students, the Internal Revenue Service considers them dependents until 24; those without health insurance will soon be able to stay on their parents’ plans even if they’re not in school until age 26, or up to 30 in some states.
  3. Definitions of adulthood are clearly not just a function of age. (and so our marketing to them should consider more subtle measures than simply age ~ David Kirk) Continue reading “Not growing up”

Eskom – industrial versus retail tariffs

Moneyweb has an interview with Eskom CFO. For me, the point made about the reasons for differences between retail and industrial tariffs is worth highlighting. This is another example of where common perception is off.

(Incidentally, Eskom tariffs are currently 68 cents for residential, 28 cents for big industrial)

From the moneyweb interview:

PAUL O’FLAHERTY: What is one of the myths of this industry is that the key industrial user does subsidise the residential user – that’s a fact. And the reason for it, even though it seems on the tariff that you quoted, that can’t be – it is true because the cost of delivering electricity to someone living out in the sticks is a lot more than delivering it to a transmission station right next to a mine, for example. So there’s a significant cost differential in actually getting electricity out there, and therefore the key industrial users do actually subsidise the residential users.