All Revved Up But No Place to Go?

All Revved Up But No Place to Go

Introduction

Have we ever stopped to think what our products look like to a layman?

Have we gazed at a supermarket aisle lined with shelves upon shelves of what are essentially the same or slightly differentiated products but with different branding or labelling? How many of us actually read the labels in endeavour to match what is on offer to what we really need? Do we always know what we’re looking for in the first place?

If purchasing tangibles presents us with so much dilemma, how much more difficult would it be to sell insurance; a service? This is even more complicated by the fact that if with a food item the dilemma is between, say, fewer carbohydrates or more sugar, with insurance it is simply a case of consumers either not appreciating the need for it all or not understanding the intricacies of insurance. This is not to suggest that consumers are to blame for ineffective demand; we are also not doing a good job at creating effective demand.

Utility, Demand and Effective Demand

Some might think that it is relatively easy to sell something for nothing. I beg to differ and I may have statistics to prove it but that would be a topic for another article. It is generally not price, but utility that creates demand. Price, in this respect, is of secondary importance in that from demand then the concept of effective demand evolves. The theory of utility (in economics), as the word suggests, relates to the relevance or importance that a consumer attaches to a product or service. Utility having been established, price then comes into the picture, i.e. if there is a perceived need for a product or service, it is then that a consumer would ponder on how much one is willing to pay for it. Whilst, in insurance we all seem savvy to the fact consumers want to consume more for less and less for more, we also seem to ignore the fact that they would not be willing to consume at all if they do not appreciate the utility of insurance.

Why is it for example that in certain GCC markets, insurance demand is dominated by motor and medical (where these are a legal requisite), energy, aviation, marine, construction and commercial / industrial property (where these are required by virtue of contractual and/or financing agreements)? How much insurance purchased within the region is purely discretionary? If one had to strip from the premium spend per capita within the GCC all of the above compulsory forms of insurance, the stark reality is that very little insurance is purchased on a purely voluntary basis.

The reasons for this vary from socio-religious (that is now being slowly challenged by Takaful insurance), lack of insurance awareness / education in general, demographics (with significantly large and relatively transient expatriate population) and, in some of the GCC states, the still evolving regulatory and supervisory framework.

All of these have contributed to pseudo-competition within the GCC markets based almost entirely on price resulting in a blood-bath. The markets are still evolving and vary between the tacitly protectionist (i.e. a single company controlling over 60% of a market) to other markets with more covert forms of protectionism. The larger companies within these markets have also sought to expand mainly within the MENA region in markets that are generally less developed. Whilst this has helped diversify the breadth of their premium portfolios, the same ‘top-line’ strategy is generally pursued in less developed markets where premium growth is even more reactive or dependent on the general pattern of economic activity.

Profitable Growth

The financial crisis probably helps accentuate the need for a 2-pronged approach, i.e.

  • more ‘bottom-line’ or profit focus within the MENA region in general probably necessitating the assumption of more net retained risk and greater emphasis on non proportional reinsurance; and
  • for the larger companies seeking geographical growth looking west instead of east or within the region. Notwithstanding the availability of reinsurance capacity, there is still room for more retail capacity in Europe particularly with the growth of aggregators and syndication of capacity. The business model is different to the one adopted within the region and would expose companies to more transparent and, in some cases, better regulated use of capacity.

A longer term view on profitability is required than the current revenue driven models characteristic with the MENA region.

Pre-requisites for both of the above are education and regulation.

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About insuranceguild

Sharing Knowledge for the Common Good: Many associate guilds with British pre-industrial era. However, predecessors of guilds are found as far back as the 3rd century BC in the Roman Empire. They were also present in various civilizations including Ptolemaic Egypt, India, Iran, China, African dynasties as well as various European countries such as medieval Germany and Italy. A guild is typically an association of practitioners from the same trade. In addition to protecting and developing crafts, trades and business, guilds also helped foster a learning environment among members. Through this platform I wish to share articles of an insurance / risk management nature and hopefully generate comments from readers that would help to enrich my knowledge as well as the knowledge of other insurance and/or risk management practitioners. About the Author: A Chartered Insurance Practitioner by profession, James Portelli is also a Fellow of the UK Chartered Insurance Institute and of the UK Institute of Risk Management and holds an MSc in Risk Management from Glasgow Caledonian University, U.K. James has been active in insurance and risk management since 1990 and in training since 1987. He started his insurance career in general insurance underwriting and agency/broker management with Middlesea Insurance plc (also forming part of the company's Risk Management Implementation Committee and assisting in captive insurance development). He first moved to the Middle East in 1998 occupying senior training, technical, consulting, business development, risk management and strategic development roles. James is also a 2008 CII (UK) Morgan Owen Prize Winner and the 2011 IRM (UK) Steve Butterworth Award Holder.
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2 Responses to All Revved Up But No Place to Go?

  1. John Portelli says:

    Hi James, very interesting combination of the viewpoint of marketing and insurance! It hit my eye because of the marketing aspect in it (I’m not really so au current on the intricacies of insurance, as I am sure you remember well) but I think you hit the nail on its head in pointing out that we all need to learn more about what really makes our products/services tick. I find that many times we get stuck in doing the same things we always did without trying to look beyond our windows. And see what’s moving out there, with our customers, with their lifestyle changes (including technological ones). The more people like you speak about these things the better it is for others to question what they are doing, why they are doing it, what their customer thinks of it and such like. More importantly, does our customer need our product in its present branding? Well done. And oh, is their any truth that we might start seeing you in a kilt? :o)))) Prosit!

    • Thanks John … great to have the perspective of a marketeer / P.R. professional. We in insurance sometimes have our nose too close to the painting to see the bigger picture.

      I might wear a kilt … yes. MSc graduation is in a couple of weeks time in Glasgow. 🙂

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