Drivers of Change Towards

Five drivers of change in the South African insurance industry today have been Identified (PricewaterhouseCoopers, 2012). These range from regulatory and reporting changes to changing demographics and urbanisation. The top three changes apply equally to the short-term and the long-term industry. Other major changes that are identified in the South African insurance industry now range from regulations to claims.

Respondents further say the following are currently the major changes taking place in the insurance market:

2.10.1Regulation

Participants in the PWC report (2012) cited a number of issues, including SAM, TCF, FAIS, and Binder regulations.

2.10.2 Changes in the Insurers’ Business Models

This includes changes in distribution, with the continued expansion of direct channels and recognition of the significance of these channels by established players such as Sanlam with MiWay and Old Mutual with iWyze.

2.10.3 Intermediaries Shake-up

Major changes are expected in the future role of intermediaries. Shake-ups are expected across the board. The rise of direct insurers, customer empowerment, price sensitivity, product changes, and new regulations will fuel these changes. Consolidation has already occurred at the highest level with Alexander Forbes Risk Services and Marsh.

2.10.4 Increased Focus on the Consumer

Although a consumerist trend has been underway for a number of years, it has moved up the agenda because of the FAIS Code of Conduct and TCF regulations.

2.10.5 More and New Entrants

More direct players are anticipated in addition to the increasing interest of retailers and mobile phone companies.

2.10.6 Claims

A participant noted that there is a major focus in the industry on the procurement side of the business aimed at reducing rising claim costs.

With the 2020 landscape broadly outlined, it is necessary to focus on specific drivers of change en route to that year. Insurance is exposed to a variety of factors that are driving change in the sector; the sector is service-oriented and is heavily dependent on the skills, knowledge, and the abilities of its employees.

2.11 Non-Sector-Specific Drivers of Change

Non-sector-specific drivers of change refer to macro-economic factors that have indirect effects on the insurance industry in terms of skills development implications.

2.11.1 HIV/AIDS

HIV/AIDS increased steadily in South Africa between 2001 and 2011. The HIV/AIDS problem has led to a redesigning of policies and procedures within the insurance industry. A greater focus on a healthier lifestyle for employees is needed in

order to promote a productive sector.

HIV/AIDS is high on the national as well as the INSETA agenda. The number of persons infected with HIV is on the rise (Statistics South Africa, 2011). The total number of persons living with HIV in South Africa increased

from an estimated 4.21 million in 2001 to 5.38 million in 2011. In 2011, an estimated 10.6% of the total population is HIV positive. The number of people in the working age group range is considerably higher, which is a major concern.

The number of HIV-positive people in South Africa is among the highest in the world. The pandemic is considered to be the most serious social, economic and humanitarian challenge of our time. It is affecting

SECTOR SKILLS PLAN 2014 Page 82 Figure 2-1: HIV mortality rates

Mortality is higher in Black and White citizens (see Figure 2-1). Mortality in South Africa is exacerbated by high crime rates, other health-related deaths and high accident rates. South Africa is plagued by a quadruple burden of disease as classified by the Medical Research Council of South Africa: HIV/AIDS, other communicable diseases such as tuberculosis and malaria, non-communicable diseases such as diabetes, and obesity, and cardiovascular diseases. In addition, South Africans have to deal with a huge amount of violence, trauma, and injury. Not only is HIV/AIDS increasing mortality, but it is also decreasing life expectancy, particularly among Black people (Haldenwang, 2010:4).

2.11.2 Longevity

There are various alternative options available to employees who are approaching retirement age. An increase in the traditional retirement age may sometimes be considered. Various factors may influence this decision. High youth unemployment may also affect this decision.

People are living longer after retirement due to health improvements and better lifestyle choices. Table 2-13 sets out the life expectancy of South Africans from birth to age 100. The typical life expectancy of South Africans older than 65 years for males is 77.5 years and for females 79.6 years. At age 70, the expectancy for males and females is 80.4 and 81.9, respectively. It is thus likely that South Africans could spend anything from 12 to 20 years and beyond in retirement. The likelihood of women participating in the labour market for longer periods is much higher than for men. Many people spend more time preparing for work and in retirement compared to the years that they actually work.

Longevity, coupled with inadequate retirement savings, high unemployment among youths and labour market inflexibility, presents a number of challenges for those who would like to stop working as well as for those who wish to continue working beyond the traditional retirement age. Employees who approach retirement age may opt to leave formal employment for part-time employment, leave full-time jobs for transition jobs or leave employment altogether due to disability. Employees could continue working by negotiating a downscaling of role and responsibility or by fulfilling a mentorship role towards the end of their working lives. An increase in the traditional retirement age is another possible solution. Although this might be acceptable to an employer, the productivity of older workers, workplace design, flexible employment options, and the need for continuous education will influence the eventual decision. This is especially true in South Africa, where the retirement age is kept low due to the large number of youths who are unemployed. How sustainable this approach will be in the end, due to the critical skills shortage, remains to be seen.

0 2 4 6 8 10 12 14 16 18 20 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 Crude m ortality rat e Asian/Indian Black/African Coloured White

Table 2-13: Life expectancy in South Africa by age

Male Female World Rank

M F At birth 50.1 48.3 176 180 Age 5 57.9 57.9 183 187 Age 10 58.2 58.3 184 188 Age 15 58.4 58.6 184 189 Age 20 58.8 59.1 184 189 Age 25 59.6 60.9 184 188 Age 30 60.7 64.1 184 185 Age 35 62.6 67.9 184 180 Age 40 64.9 70.7 184 167 Age 45 67.5 72.5 178 164 Age 50 70.1 74.2 169 156 Age 55 72.5 76.0 153 146 Age 60 75.1 77.8 143 136 Age 65 77.5 79.6 128 127 Age 70 80.4 81.9 112 114 Age 75 83.2 84.4 101 100 Age 80 86.6 87.8 79 77 Age 85 90.1 91.1 70 56 Age 90 93.8 94.6 56 42 Age 95 97.8 98.2 46 37 Age 100 102.0 102.3 58 33 (FANews, 2013)

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2.11.3 Unemployment

The government’s objective to create new jobs is impeded by slow economic recovery and regulatory requirements. Levels of unemployment increased from the fourth quarter of 2010 to the second quarter of 2011. Although the economy has recovered to some extent, job losses continue. Two factors have been identified as causing youth unemployment.

Youth unemployment develops into adult unemployment. The government’s target to create 4.5 million job opportunities by 2014 appears ambitious in the context of the sluggish economic recovery that South Africa is likely to experience in coming years as well as the regulatory requirements of this industry. Data indicate that the official unemployment level increased to 25.7% in the second quarter of 2011, up from 24% in the fourth quarter of 2010, with the total number of unemployed people at 4.538 million in the quarter ending June 2011 (Statistics South Africa, 2011). This, especially in the light of regulatory and legislative changes that lead to business mergers, has resulted in retrenchments in the industry (Statistics South Africa, 2012).