Tough Times in the Insurance Industry. How do Champions Respond?

Published on: 19 June 2013

Times are tough in the insurance industry.

Exceptional profits for a number of years pre-2012 led to a price war as well as a number of new entrants who saw the opportunity of grabbing a share of the attractive, profitable “short-term insurance cake”. The natural consequence was that the industry experienced lower underwriting profit margins in 2012, and the compounding effect of the weakening rand on top of this created a “perfect storm”. More competition plus lower profit margins plus a weakening rand equals a disaster waiting to happen. The response from most insurers is to increase premiums to try and restore profit margins. This is bad news for consumers….

The challenge for insurers lies in finding ways to lower management expenses in order to keep premium increases as low as possible. The obvious danger of having to increase premiums is clients shopping around for cheaper premiums. This could lead to a “double whammy” for insurers in the sense that their profit margins shrink and they lose market share. Not a pretty picture.

My sense is that the tough times will be with us for a couple of years.

My tendency is to always look for the positives in any bad situation, to see the glass as half full, to look for the opportunities. Am I living in a fool’s paradise, or are there opportunities in a depressed market?

In my experience, tough times offer more opportunities for growth than good times. When things go well, people and businesses tend to just tick over…… and very few lessons are learnt whilst just ticking over. Tough times on the other hand force everyone to dig deep and more often than not valuable insights and solutions result from it. The well-known Plato saying, “necessity is the mother of invention”, says it all.

We know everything about tough times at MiWay. We launched in 2008, roughly a year before the credit crunch hit South Africa. We were suddenly faced with a much less attractive vehicle sales market than the assumptions in our business plan. We were faced with a simple reality: adapt, or die. Find a solution, or find another job. If only it was as simple as that! A bigger dilemma, for me, was the fact that we had a couple of hundred employees whose well-being weighed heavily on my conscience. I would have felt personally responsible for them losing their jobs if MiWay had to fail. Many of them had placed their trust in me and my management team!

One of my all-time favourite quotations, by the world heavyweight boxing champion of yesteryear, Jack Dempsey, comes to mind: “A champion is a person who gets up when he can’t”. We couldn’t get up. But we did.

We managed to find a number of solutions, some which stood us in good stead when times got slightly better. I have no doubt that had it not been for the sleepless nights of 2009, we would never have “discovered” some of our best strategies to date. I use the phrase “discover” to describe the process of trial and error – think, agonise, debate, argue, disagree, try, try again, try something else – until, eventually, something worked!

So, in a way, tough times are a blessing. If approached with the right attitude, it invariably leads the discovery of solutions that stand you in good stead once you emerge – hopefully not too badly scarred – from the storm.

Kind regards,

René Otto