Will life insurance with your broadband succeed?

Next time you go into a Vodashop to increase your data cap, why not consider adding on some long-term insurance products as part of your purchase.

This week Vodacom announced that it will start playing in the South African insurance market after being awarded a long-term insurance licence by the Financial Services Board (FSB).

Earlier in the year, Vodacom already received its short-term insurance licence from the board.

This means that the telecommunications company can now underwrite and sell insurance products.

According to Adrian Cloete, equity analyst at Cadiz Asset Management, the cellular giant might have a tough time competing in the market, despite the benefit of being able to target its existing client base of 30m customers.

The long-term insurance industry in South Africa is basically dominated by a couple of main players – Discovery, Liberty, MMI, Old Mutual and Sanlam.

These players have large market shares of the existing insurance assets and large market shares of new business written, Cloete told Moneyweb.

“For a new player to penetrate the market in any significant way you need a strong brand, strong distribution and innovative products. Vodacom does have many clients and good client relationships, but the insurance market has very strong competitors,” he said.

Mark Taylor, managing executive of Vodacom Financial Services, believes that Vodacom has the stuff that it takes to cut into the market.

“We have a base of more than 30m customers and the necessary support mechanisms such as billing and customer care, which enables us to reduce the cost of acquisition quite substantially. These cost savings will be passed on to our customers. So our customers can expect great value from our insurance products,” he told Moneyweb.

It’s not clear yet what products Vodacom will offer and it could also not give an indication on when news about products will reach the market, only saying that this will happen in due course.

According to a FinScope study released late last year, 57% of the adult population in South Africa have no form of insurance. This is compared with 50% in 2010.

The study also showed that the percentage of South Africans using formal insurance products was even lower at 34%.

Although Taylor could not provide statistics, he said that the bulk of Vodacom’s customers do not have insurance “due to lack of affordability.”

“Our vision is to dissolve these access barriers by providing more affordable insurance products to our customers,” he said.

“When customers see the value we offer, it will make sense for them to opt for Vodacom Insurance.”

According to the FinScope study the largest decline with regards to insurance products was seen in funeral cover, a product among the lower income households. In its findings FinScope stated that the decline was because of affordability and that lower income households especially were experiencing financial strain.

An interesting thing that the study highlighted was that although a large percentage of South Africans were uninsured, cellphone penetration in the country was extremely high at 92%.

This gives Vodacom an ace up its sleeve.

When asked whether Vodacom is aiming to bring innovative new mobile solutions for insurance to the market Taylor admitted that linking its new insurance offering with its core expertise was in the pipeline.

“Over time our insurance offering will be added and linked to our core telecommunication product offerings,” he said.

Victor Muguto, Insurance Leader for PricewaterhouseCoopers South Africa, believes that technology offers alternative means to distribute insurance products.

In an article in the South African Financial Services Journal earlier this year he indicated that cellphones, smartphones and tablet technology are increasing ‘go anywhere anytime’ access to the internet.

“Could these advances present new distribution opportunities for insurers in Africa, where populations are largely rural and inaccessible by traditional bricks-and-mortar based channels?” Muguto asked in the article.

As part of the strategic decision to enter the insurance market, Vodacom appointed FRANK.NET, a direct life investment company which is owned and capitalised by Liberty Holdings, to provide administrative and claims support for its long-term insurance offering.

Source: Moneyweb

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