While agents and brokers have traditionally formed the key distribution channel for both short- and long-term insurance, a rapid shift in distribution mixes has unsettled traditionally fixed market shares. As newer and smaller direct insurers have gained significant market share in the past six years, in personal motor and property lines particularly, South Africa’s largest insurers have reacted by launching their own direct channels. Where direct insurers have not proved so successful, in long-term (life) insurance, bancassurance has made inroads through credit life and group life lines. As a multi-channel distribution mix emerges, product offering is becoming increasingly differentiated and competitive.

Going Direct

The traditional distribution channel long consisted of brokers and agents – the latter particularly for life insurance. The largest insurers, often holding equity stakes in brokers to stifle excessive price competition, have faced aggressive competition from direct insurers over the past five years. “Many of the more established and traditional insurance companies in South Africa are facing competitive pressure from direct insurers,” Randolph Moses, the managing director of Hannover Reinsurance Africa, told OBG. The first to enter the market in 2006, Guernsey-based Telesure’s 1Life Direct and Dial Direct, made significant inroads in motor lines and has since been joined by Liberty’s Frank.net, Santam’s MiWay and OUT surance, as well as the largest internet-based insurer, Instant Life.

With a business model backed by a significantly higher advertising budget targeting retail clients, the channel grew to account for 25% of short-term insurance premiums by 2012, according to accountancy group KPMG. While the direct channel made the initial, and as yet most successful, inroads into motor and property premiums, it has been more constrained on the long-term segment. “Direct insurers have been most successful on personal short-term lines, while the life business continues to be dominated by group life, sold predominantly through brokers and agents,” Michael Prinsloo, head of best practice at Alexander Forbes, a leading independent African retirement fund, told OBG. By the first half of 2012 direct insurers like OUTsurance were achieving revenue of R7bn ($853.3m), followed by Telesure’s R4bn ($487.6m). The direct channel as a whole grew its premium by 17.8% in the year to the first half of 2012, according to Financial Services Board (FSB) figures. The response of leading insurers has been to launch their own direct insurance arms: Old Mutual launched its iWYZE product for insurance of valuables in 2010, as did Santam, Mutual & Federal, Hollard, First National Bank and others.


Strong equity links between some of the country’s largest insurers and its banks make for natural synergies in rolling out bancassurance strategies, with many of the strongest distribution relationships amongst affiliated groups. Since Standard Bank concluded its exclusive partnership with Liberty in 1998, it has rolled out the partnership to its 18 African operations in 2012. Following consolidation in the banking sector, four main banks offer banking, insurance and asset management under the same roof. While banks are barred from making loan approval dependent on the purchase of an insurance policy, clients have tended to opt for bundled credit policies. Absa’s insurance arm emerged as the largest and fastest-growing, short-term bancassurance player, generating some R3.7bn ($512.45m) in premiums by the end of 2011.

Consolidating Brokers

Brokers have traditionally been the dominant channel for covering the formal sector, while agents have been used for outreach in the townships and rural areas. Ratings agency Standard & Poor’s has historically viewed the high reliance on brokers and other intermediaries as a weakness in the sector, although it conceded in a 2012 note on the insurance industry that equity stakes held by underwriters in their intermediaries has mitigated the level of autonomy and price competition.

With over 400 brokers the market remains fragmented, although the majority are smaller players. Global brokers like Aon and Marsh have driven consolidation in recent years, however. The UK’s Aon acquired leading local brokerages Glenrand MIB and Pinion Insurance Brokers from 2010, while the US’s Marsh agreed to acquire the short-term brokering business of South Africa’s Alexander Forbes in all 11 countries of operation in late 2011. Alexander Forbes retains a direct short-term insurance business, a life broker, the largest cell captive insurer (Risk Guard) and a pension fund administrator in South Africa. London-based Willis Reinsurance has grown to one of the three largest brokers since first opening in 2000, while fellow British broker Jardine Lloyd Thompson (JLT) opened local offices in early 2011 and is rumoured to seek an acquisition in the coming year. The brokers’ market now dominated by three major international players (with a fourth, JLT, likely to make significant inroads in the medium term). Of local players, Indwe Risk Services now stands as the largest domestic broker, according to sector estimates.

Stricter Oversight

The FSB has strict rules in place for remuneration of insurance intermediaries, capping commissions at 12.5% of motor premium and 20% of non-motor lines. Brokers are required to extend a guarantee to insurers. “New legislation governing how brokers are remunerated will bring major change – it makes sense that brokers should be more transparent and not act as sole agents for one entity,” Randolph Moses, managing director of Hannover Reinsurance Africa, told OBG. “However, some of the rules lack clarity and could be subject to interpretation,” he added.

As new “treat customers fairly” (TCF) rules are enacted from 2014, holding underwriters responsible for the market conduct of intermediaries selling their policies, coordination between brokers and insurers is only set to grow. The FSB has launched a review of the roles and responsibilities of intermediaries, with a view of clearly regulating market conduct and fee structures.

“We have broadened our review of intermediary services,” Jo-Ann Ferreira, a senior manager in the insurance supervision department of the FSB, told OBG. “The current definition of intermediary services is wide; the review will aim to clearly define responsibilities and revenue structures, delineating independent advisory fees from commissions for instance.”

Beyond stricter oversight of brokers, the review is also expected to bring in new regulations covering services for aggregators, such as policy comparison websites, as well as new distribution channels used by direct insurers, such as mobile phones.

Telecoms & Affinity

Telecoms operators have shown growing interest in mobile insurance platforms since the FSB awarded the first intermediary licence to Vodacom in 2011. Already active in mobile banking in partnership with Nedbank, through the M-Pesa service modelled on the Kenyan eponymous service, Vodacom pioneered its M-Cover policy in 2012. Launching a limited funeral policy cross-sold to M-Pesa customers, clients are covered up to R1000 ($121.90) through their use of M-Pesa, while those buying the add-on policy are covered up to R10,000 ($1219).

South African insurers have also shown interest in using mobile channels to sell insurance in other regional markets. Sanlam announced a partnership with India’s Bharti Airtel in September 2012 for the rollout of low-cost life and health policies in seven of Airtel’s African markets, including Kenya, Ghana, Nigeria, Tanzania, Zambia, Malawi and Uganda.

The FSB considers that mobile channels may be the most adaptable sales channels for selling micro-insurance products – limited and low-cost policy covers aimed at low-income groups – and is expected to issue new regulations framing market conduct in the mobile space as part of its review of intermediaries in 2013.

While such innovation in distribution will likely lower the barriers to access, particularly in rural areas, “know your customer” rules against money laundering, which require financial services providers to conduct due diligence on new clients, will limit the level of coverage offered through mobile platforms.

Other affinity partnerships are gradually gaining importance in terms of widening access to insurance products, such as those with retailers, community associations, religious groupings, utility companies and the post office. Serving as aggregators of clients, such groups offer the prospect of lowering distribution costs.

While growth of new distribution channels and stricter regulatory oversight is prompting consolidation and further specialisation of brokers, insurers are developing a more differentiated and nuanced approach to the market. The advent of new rules expected later in 2013 should formalise the role of each channel, while insurers are likely to drive expansion in market penetration through more proactive industry outreach.