Insurers tapping into the certainty of niche insurance solutions as the economy and volatility bites

Opinion by Cornel Schoeman, Chief Operating Officer of GENRIC Insurance Company.

There is unprecedented disruption and uncertainty in every industry and household right now.  Global and local economic and socio-political factors, weather catastrophes and climate change, crime, deteriorating public infrastructure are all exacting a heavy toll on traditional insurers and consumers, as claims and the costs of cover of the traditional property, motor and assets insurance escalate in response to these factors.

Yet, while broad insurance coverage like motor, household and business assets covers remain under pressure, both in terms of premium costs and claims ratios, other specialised or niche insurance products are seeing growth. There are two key drivers behind the growing demand for niche insurance solutions – consumers and business owners are looking for the certainty of cover for very specific, and typically unusual risks, and secondly, insurers and brokers are looking for ways to differentiate in a highly competitive market as well as de-risk their traditional portfolios.

Insurance and the types of risks people and businesses are facing have also changed radically over the years.  New insurance products and technologies now allow insurance buyers to become a lot more granular in their approach to their risks and get the absolute certainty that they are covered for specific and unique events.

It is interesting to note that consumers and businesses are specifically looking for solutions and added peace of mind where they feel most vulnerable – consider the following niche insurance growth areas to illustrate:

  • Gap insurance is seeing significant growth as the trend in medical scheme benefit buy-down continues due to affordability challenges. Where consumers are buying down on their existing medical scheme benefits to ‘core’ plans due to financial distress, they are taking up gap cover insurance to protect them against potential medical scheme financial shortfalls on specialist and in-hospital treatment – these are not unwarranted concerns as recent mega claims paid by Sirago Underwriting Managers show massive shortfalls upwards of R40 000 not covered by the medical scheme – without gap cover, the consumer would have to pay for this from their own pocket.
  • Primary health insurance – As medical scheme membership and private healthcare remains unaffordable for a huge swathe of the population, insurance companies have stepped in to offer more flexible and affordable coverage options, especially in the primary healthcare space. Customisable primary health insurance plans with add-on benefits such as maternity and accident and emergency cover benefits, and family-specific benefits that offer unlimited GP visits especially those with younger children, are in high demand.
  • Growth in emergency medical support – Road accidents and crime are a daily occurrence and where public emergency services are under-resourced, demand for emergency medical assistance and evacuation insurance has increased sharply. More and more insurance companies are offering lifestyle-related or accident-only products that cover insureds under specific conditions as demand increases.
  • Mechanical warranty and service plan insurance solutions are seeing growth as consumers drive their vehicles for much longer and are also replacing with ‘used’ vehicles versus new car purchases. These solutions reduce exposure to out-of-manufacturer-warranty breakdowns, while a service and maintenance plan provides cover for the scheduled services that the vehicle will need that are no longer covered under the service plan that typically comes with a new vehicle.
  • Personal cybercrime insurance – the huge growth in online shopping and transacting has seen South Africa hard hit by cybercrime and online fraud, and no one is safe from this risk. While cyber insurance solutions exist for commercial entities, GENRIC was one of the first insurers to pioneer personal cyber insurance to protect the personal data and bank accounts of individuals from fraudulent online and in-app purchases, malware or viruses that harvest personal data, fraudulent EFTs and phishing scams.
  • Specie Insurance – Highly specialised coverage is essential for safeguarding high-value portable assets such as precious metals, gems, securities, and cash, backed by reputable and economically solid carriers. Insurers are also being heavily challenged to reform existing policy frameworks to underwrite digital assets such as cryptocurrencies and NFTs.
  • Pet Insurance – For many pet owners, their pets are family members, so having an insurance solution that takes care of their pet’s healthcare needs – in much the same way as people rely on medical insurance in a health crisis – is non-negotiable. An analysis of pet insurance claims by GENRIC shows that the average claims costs for veterinary treatment is on the rise – while mega claims for bills upwards of R15k are increasingly common – putting the cost of veterinary care in the realm of private healthcare for people.
  • Shack, informal housing and merchant insurance – In developing South Africa’s first insurance solution that provides buildings and contents cover for shacks, township and rural homes built outside of formal building regulations, as well as merchant cover, GENRIC worked with an innovative insurance entrepreneur to recognise the unique challenges facing low-income markets – from access, affordability, technology, education and payments – to adapt our product to provide meaningful and affordable financial protection to those who need it most.

The growth in niche insurance products can be attributed to several factors:

  • Diversification and Specialisation: Savvy insurers are increasingly recognising the value of diversification and specialisation by offering niche insurance products that cater to specific industries, professions, or risks, allowing them to develop expertise in those areas.
  • Advancements in Data and Technology: The availability of more data and advancements in technology, including data analytics and artificial intelligence, have enabled insurers to better assess and understand specific risks.
  • Changing Consumer Needs: As consumer needs and preferences evolve, there is a growing demand for insurance products that address specific risks or lifestyles. Niche insurance products can offer more personalised and targeted coverage, appealing to consumers who may find standard policies less relevant to their particular situations.
  • Market Competition: Insurers face intense competition, and offering niche products allows them to differentiate themselves in the market.
  • Risk Mitigation: Some industries or businesses face unique risks that may not be adequately covered by traditional insurance products. Niche insurance allows companies to mitigate these specific risks and provides a sense of security for businesses operating in specialised sectors.
  • Regulatory Changes: Regulatory changes can also influence the growth of niche insurance products. In some cases, regulatory developments may create opportunities for insurers to develop new products or expand into underserved markets.
  • Globalisation and Emerging Risks: The interconnected nature of the global economy and the emergence of new risks (such as cyber threats, climate-related risks) have created a demand for insurance products that address these specific challenges.
  • Collaboration and Partnerships: Insurers often collaborate with industry experts, UMAs or other stakeholders to develop niche products. These partnerships can provide insurers with insights into the unique risks associated with a particular sector, helping them design more effective and targeted coverage.

You can’t put a price on peace of mind, and in increasingly uncertain times, consumers are looking for more certainty in highly defined insurance covers. Specialist insurance cover gives your policyholders greater certainty and peace of mind. People respect the value that specialisation provides at a time when everything else seems so out of control and uncertain. We expect this trend towards specialisation and niche risk solutions to continue in our radically changed world where there is a far greater appreciation of just how unpredictable and far-reaching risk can be.

For brokers and risk advisors, the growth in specialised insurance products, along with the rapidly changing nature of risks that consumers are facing – consider healthcare funding as just one example – means that the role of advice has never been more important in helping consumers decipher the complexity and choose the right products, at the right time and price.

For insurers and UMAs looking to enter the niche insurance market, successfully launching a new insurance product to market is challenging. This is where collaboration with an insurance underwriter with a solid track record in bringing specialised insurance solutions to market will prove invaluable. By staying ahead of these trends, insurers can provide better coverage options and services to their customers while remaining competitive in the marketplace.

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