Tarina Vlok, MD: Elite Risk, a subsidiary of Old Mutual Insure, on Short-term Insurance for the High-Net-Worth Sector
From 2012 to 2022 the wealth segment in South Africa contracted by 21%. This is largely driven by poor economic growth and a 50% decline of the Rand vs. the US Dollar over the period.
Despite this contraction, South Africa still has over double the number of high net-worth individuals as any other African country and ranks 30th in the world when it comes to the number of Dollar millionaires. The growth forecast is also very positive, with 42% growth projected on the continent for the next ten years.
High net-worth trends – Trends for 2023 include a continuation of semigration to coastal regions, where high-net-worth numbers in the inland cities on the index contracted by a combined 75%, whilst that of the coastal regions (excluding Durban) increased by a combined 65%. Particular growth was recorded in the Cape Winelands, the Garden Route and the Whale Coast.
The previously identified trend of emigration in the interest of wealth protection and access to global mobility continues. Most African emigrants relocated to the UK, USA and the UAE, with many also moving to Australia, Canada, France, Israel, Monaco, New Zealand, Portugal, and Switzerland. Interestingly, many African high net-worth individuals have relocated to South Africa.
The growth of the high net-worth sector in Namibia was noted as an especially interesting development. This could open up opportunities for South African insurers who operate in Southern Africa.
When it comes to investment, art remains a top asset class. Especially popular are African artists like Sydney Kumalo, Gerard Sekoto and Irma Stern.
Another growing asset class for investment is the collection of classic vehicles, in particular certain makes and models, like Porsche, Ferrari, ASTON Martin and Lamborghini ranging from the 1950’s to as late as 1990’s.
Definition unchanged – With the current global economic conditions, the sluggish growth of the South African economy and the poor performance of the Rand against most foreign currencies, the sector is certainly shrinking and has shown a 21% decline over the past decade. Despite this decline, South Africa still tops the list of wealthiest countries in Africa with around 38,000 Dollar millionaires.
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We also have some of the world’s most upmarket residential areas and there are around 3,700 homes in South Africa valued at more than USD 1 million. This makes us one of the 20 largest prime residential markets in the world. The most expensive real estate in the country can be found in Clifton and Bantry Bay.
Taking into consideration this indication of significant wealth, it follows that the criteria will not change, and that the global definition of high-net-worth individuals remains unchanged. Some insurers may choose to lower their qualification criteria in support of growth strategies, but those are up to each insurer and the data supporting those decisions.
Dedicated teams for specialised needs – We are all aware that with great wealth comes many options and the expectation of superior service. In an intermediated model, these clients are often VIP clients to their brokers, with linked commercial or corporate accounts. In a corporate environment like Old Mutual, there is the possibility that the account is also linked to investment accounts, making it even more important to ensure that your service is at the best possible level. Insurers understand that to effectively service this segment, you require a bespoke model and superior skills.
Of course, this is a highly desirable market, as premiums are high due to the high values of assets insured. It needs to be understood that we as underwriters require a few things to effectively service this market:
- Access to capacity. Often sums insured are much higher than your exposure appetite allows, so it is important to have good reinsurance programs in place.
- Skilled staff. With the shortage of highly skilled staff in the insurance industry, it is important to ensure that you attract and retain the correct staff to service the segment and provide personal service wide of a call centre setup.
- Seamless processes. From acquisition to claims, the processes need to be seamless and smooth to ensure effective service delivery across the policy lifecycle. Where possible, it is best to utilise technology to ensure efficient processes.
- Relationships. For brokers to place their most valued clients with an insurer, there has to be a relationship and open communication. Brokers need to know they can contact management at any time to resolve any issue which may arise.