Changing Trends and the Impact of Legislation on the South African Insurance Market

2. AGENDA • INTERNATIONAL CHANNEL TRENDS • THE SOUTH AFRICAN INSURANCE MARKET • CHANGING DEMANDS FOR INSURANCE • IMPACT OF NEW LEGISLATION • CLIENT EXPERIENCE FEEDBACK • INTERMEDIATION REDEFINED • THE RESPONSIBILITY FOR CHANGE

4. CHANNEL MIX Do you currently have at least one insurance product purchased through one of the following channels? (International Accenture survey, 2010) • Internationally, consumers most commonly purchase insurance products from insurance agents. • However these figures, while large, are declining as the Internet eats ravenously into the agent’s market share. • This trend is strongest in the UK and Germany. Only in Brazil is the agent holding his own.

5. CHANNEL GROWTH How do you expect to purchase or renew insurance in the next 12 months? (International Accenture survey, 2010) The Internet is growing faster than any other distribution channel.

6. HOW CLIENTS SEARCH 20% say they use more than 4interaction points to search for insurance Mirroring other industries, insurance clients have become truly “multimodal”. Five predominant channels for information gathering Source: IBM Powerful interaction points saying goodbye to channel

9. THE CURRENT CONDITIONS OF OUR MARKET Mining unrest and industrial actions Sluggish economic growth The weakness of the Rand Not recovering expenses Currently in a soft cycle, premium level too low High level of claims in 2012

11. INTERMEDIATION DECLINING Composition of top 10 insurers • Over a five-year period the intermediated channel has lost 5.7% of its top 10 share and is the only channel not growing its share (still has the highest share at 71.3%). • The Cell Captive insurers have increased their share the most (2.9%), followed by the Direct insurer (2.5%) and then Bancassurance(0.5%).

13. BLACK MIDDLE CLASS NOW BIGGER THAN WHITE MIDDLE CLASS Source: UCT Unilever Institute 2013

14. SLUGGISH GDP GROWTH • GDP growth expected to average 2.5-2.75% in 2013. • CPI is expected to increase to around 5.5% by July, averaging 5.9% in 2013 and ending the year at 5.4%. • Provincial GDP growth strongest in Gauteng and Western Cape. • Provincial GDP growth weakest in Northern Cape and Limpopo.

15. GROWING AND DECLINING INDUSTRIES SOUTH AFRICA: 3.4% GDP GROWTH (2013-2017 CAGR) Grey = High growth Yellow = Moderate growth Blue = Low growth when compared to the five year compound average growth rate of GDP • Manufacturing *Growth compared to 2013 Estimates of GDP 2.8% – Green = high, Red = Low, Blue= 3 Year Historic CAGR

16. SPEND BY GOVERNMENT AND INDUSTRIES TO BENEFIT NEW GROWTH PATH • Massive investment in infrastructure as critical driver of jobs. • R4 trillion investment completed. • The framework identifies investments in five key areas namely: • Energy • Transport • Communication • Water and housing • Sustaining high levels of public investment in these areas will create jobs in construction, operation and maintenance of infrastructure. • Trigger to build a local supplier industry for the manufacture of the components for the build-programme. • Specific measures, particularly changes to procurement policy and regulations, are identified to ensure that this is achieved. • Risks include the still fragile global recovery; competition and collaboration with the new fast-growing economies; as well as competing interests domestically.

17. CHANGING RISKS - Santam • Variability in claim numbers, but 2012 significantly worse than average • Correlation with economic conditions – maintenance expenditure and risk management under pressure • Also impact by CAT events in Gauteng, Mpumalanga and St Francis Bay

18. How to draw a sketch on a insurance claim

20. BINDER REGULATIONS • Information letter published on 1 July 2013. • Binder activities clarified. • Incidental activities deemed part of binder functions. • Fees to be allocated per standard tick list of activities. • Separate outsourced and binder agreements may not be concluded for the same binder function. • Insurers required to report to the Regulator all binder fees currently paid per identified activity per binder holder. • Regulator to propose fee benchmarks per activity in 2014. • “Mechanical entering into” may be remunerated by an “insignificant binder fee” only. • “Intermediary fee” paid to policyholder not impacted, may still charge for risk management and advice. • 90 days to re-contract and comply if existing agreements non compliant – due date 30 September 2013.

21. TREATING CUSTOMERS FAIRLY • Fair treatment of customer is central to the firm culture. • Products and services are designed and targeted to appropriate • customer groups. • Customers are given clear information before, during and after the time of contracting. • Advice is suitable and takes account of the customer’s circumstances. • Products perform as firms have led them to expect. • Customers do not face unreasonable • post-sale barriers to change product, switch provider, submit a claim or make a complaint. • Outcomes based approach requires subjectivity, no rules are defined. • Important to define “Fair” in the context of your business. • Regulator assessment will ascribe double the weighting to outcome 1 than any other outcome. • Applies to financial services providers, including intermediaries. • Effective date is 1 January 2014.

24. OSTI REPORT Formal complaints received Types of complaints Even though 2012 was a particularly difficult year for insurers as a consequence of adverse weather conditions and fires, the pattern of claims remained unchanged. Motor is still the largest complaints category.

25. OSTI REPORT Claims percentage per category higher for banks and direct writers * Auto and General excluded since Budget and First for Women still included for 2012

26. SANTAM COMPLAINTS

27. SERVICE FAILURES HELLO PETER COMPLAINTS (JUNE 2013) Panelshoprepair failure is core concern. Policy interpretation failures: • Intermediary blamed for not informing the client of what is covered and not covered. • Clients unaware of contents of their policy documents. Repudiations of insufficient security measures and not specifying items like a pair of earrings and GPS resulting in frustration and anger from clients.

29. NEW THINKING CHALLENGES CONVENTIONAL ASSUMPTIONS Average sum insured of the motor book increased Mix and match (‘PULL’)driven by customers Traditional approach (‘PUSH’)driven by insurers and intermediaries Banks Worksite marketing Individuals Registered investment advisors Independent intermediaries Independent agents Businesses Call centres Direct / Internet

30. NEED FOR SOPHISTICATED AND INTEGRATED RISK MANAGEMENT SOLUTIONS According to the 2011 Accenture Global Risk Management study, 98% of respondents said risk management is a higher priority today than it was two years ago. More than 80% of companies surveyed also consider their risk area to be a key management function that helps them deal with marketplace volatility and organisationalcomplexity. Source: The changing face of risk management, Accenture, 2011 Source: The changing face of risk management, Accenture, 2011 Source: The changing face of risk management, Accenture, 2011

31. THREATS TO INTERMEDIATION • AGENTS HOLD THE DOMINANT MARKET SHARE INTERNATIONALLY • Fee pressure and intermediary market consolidation make this an attractive growth channel for local insurers. • Reduces income volatility and improves insurer control. • ONLINE GROWING FASTER THAN ANY OTHER CHANNEL • Less reliance on traditional word of mouth. • Availability of capital for investment in technology. • Direct players are more tech savvy. ABILITYTO CAPITALISE ON GROWTH OF BLACK MIDDLE CLASS. BANCASSURANCE offers clients unique value propositions biased to direct interaction. AFFINITY MARKETS offer clients “brand” promises that increasingly influence client buying decisions.

32. OPPORTUNITIES FOR INTERMEDIATION ACCESS IS MORE IMPORTANT THAN CHANNEL • Searchusing multiple technologies. • Purchase personal interaction. CLIENT RETENTION OFFERS GREATEST VALUE • Trust and after sales service are differentiators. • Important to be able to move seamlessly across interaction mechanisms. NEED FOR TECHNICAL EXCELLENCE • Value of advice is important.

33. EMERGING VALUE PROPOSITION CLIENT SEGMENTATION • Actively manage risk selection and retentionefforts. • Analyse the cost to service client segments to understand how service expectations and profitability differ. CLIENT VALUE PROPOSITION • Improve interaction quality. • Understand how to personalise service and show clients they are valued. • Offer a superior client experience dependent on their personal needs. • Make sales and renewal simple and convenient. • Drive speed of resolution of queries. • Tailor and improve quality of advice. • Develop technical and risk management expertise.

34. EMERGING VALUE PROPOSITION TECHNOLOGY INTERFACE • Increase the number of available interaction points with clients. • Integrate online and offline channels seamlessly. • Introduce mobile research and servicing capability. • Use social media to understand client concerns and respond to complaints.

36. MAKE THINGS HAPPEN • Intermediaries led change and innovation 15 years ago. • Who is leading change and innovation now? • Let’s get our own back. • Santam would like to be your partner of choice on the journey. • We are in it together.