ART can assist in diversifying revenue streams

In the mid nineties, diversification was the corporate buzzword of choice. Businesses operating in all types of markets, were enjoying being able to boost their bottom line by offering services and products linked to their core services and products. Then, as times got tougher and margins in core markets on core products came under threat, many businesses opted to return to their core businesses and, by the turn of the century, stick to your knitting was the new corporate mantra. But now, with the world�s economies being squeezed ever harder, many companies are taking another look at diversification, and acknowledging that the income that such activities yield can make a significant and in this climate, welcome contribution to the bottom line.

One of the industries hardest hit in economic times like these is retailers, and more specifically motor manufacturing and distribution.. Globally, the motor industry has all but collapsed and, closer to home, the National Association of Automobile Manufacturers recently went so far as to ask the government to provide stimulus to the industry. With the number of units being sold dropping steadily over the past 18 months, there can be no doubt that motor manufacturers are looking for other ways to maintain their revenue streams whilst cutting costs . And one of the areas where they can find this additional income, and vital cross subsidization, is by selling insurance products to their client base.

After all, in the motor industry the strength of the brand is paramount and, the stronger the brand, the easier it is to sell insurance products to the client base.

Obviously, the problem with the motor industry is if that if they don't move metal, they don't sell the ancillary product. However, if they are in a position to develop insurance products that are pertinent to their existing client base they can put themselves in a strong position. One such example is the opportunities created for insurers by recent changes to the Road Accident Fund. With death and disability benefits capped at R160 000 and medical benefits limited to the National Health Reference Price List (NHRPL), underwriters around the country will be sharpening their pencils to provide products that fill this gap.

Many of the big motor brands in South Africa already offer insurance products, and some of these reside in ART (alternative risk transfer) facilities. But, if the insurance programme is not housed within an ART facility the motor manufacturer will not have the flexibility of being able to create products specifically for their clients and, ever more importantly they will only earn commission or a small royalty whilst outsourcing the management of the most precious of resources, their client base, to someone else. An ART facility on the other hand allows control of the product, control of the client base and gives the motor manufacturer ownership of the investment income and underwriting profits.

By all accounts the current credit squeeze is not over by a long shot, and those motor manufacturers looking to boost their profits, and strengthen their brand even further, may find that an ART facility is the ideal structure to do so.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Prepared by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450