South African insurers often have financial interests in multiple UMAs. To debate whether this trend benefits the market or not, one first and foremost needs to have a basic understanding of what it means for an insurer to own or support a UMA.

Pieces of the puzzle

A UMA may be owned (i.e. equity ownership) by an insurer, and this ownership can differ from a minority ownership of less than 50%, to a majority ownership of more than 50% but less than 100%, to full ownership of 100%.

Across the industry, we find a multitude of different practices these days wherein some insurers:

• insist on some degree of ownership of a UMA;
• insist on majority ownership of a UMA;
• do not want to have any ownership of a UMA; and
• mix and match according to specific circumstances and opportunities in the market place.

Having said that, we are also seeing many UMAs in which an insurer has zero percent ownership, which means that the UMA has simply entered into a mutually beneficial business partnership with the insurer.

Supporting one or more UMAs

A question I would like to address is how the competitiveness of a UMA is impacted by an insurer that supports one or more UMAs.

In my opinion the support of more than one UMA by one specific insurer (by means of equity ownership or not) does not curtail the competitiveness of the UMA at all seeing that:

• Each UMA effectively runs as a stand-alone ‘mini-insurer’ with separate levels of underwriting capacity; reinsurance treaty structures; bespoke product design and covers; individual pricing modes; bespoke claims service; individual corporate culture and specific operating systems; and
• The market benefits from the unique proposition of each UMA as it gives greater access to choice.

There are insurers who are known for having a multitude of different UMAs. Most of these UMAs, however, do not compete in the same market space – whether by class of business or due to some niche within the same class of business. Therefore, each UMA can be seen as a separate competitive entity in the market, even though each one of these UMAs are tied to the same insurer.

In certain instances where UMAs do compete in the same market space (i.e. same class of business, similar product and target market), many specific and tangible differences (as mentioned above) do exist within each one of the UMAs. As such, the competitiveness between the competing UMAs is not compromised in any way.

Distinct competitive edge

Insurers that truly understand and are comfortable with the UMA business model will appreciate that each UMA needs to represent and deliver on the aspects that make them unique – this is what gives the UMA, as well as the insurer on whose license it is trading on, a distinct competitive edge.

An insurer that wishes to position and enforce its brand, culture, pricing, claims service, systems, etc. into any of its UMAs, is probably not best suited to operate a UMA business model.

In my opinion, despite the concentration of UMAs being attached to fewer insurers as industry consolidation continues, there are still many independently operated UMAs.
Therefore, the market still has a wide degree of choice. In actual fact, there may still be too much competition in the market place as we are seeing many UMAs giving discounts on premiums to levels where combined ratios do not produce sufficient return on capital. In these instances, important choices have to be made about the future sustainability of the respective brands and business models.