CIB stands tall as short term insurance profits slump

CIB achieved this result despite severe weather catastrophes and multiple fires during the period. The most notable catastrophe events include January 2013 floods in Limpopo, floods in the Western Cape and two significant hailstorms in Gauteng in October and November. And the industry has already described the 28 November hailstorms in Gauteng as one of the most severe catastrophe events experienced in South Africa to date! It is estimated that local insurers and their reinsurers will pay-out more than two billion rand in damages.

"In order to trade profitably in the short term insurance market one needs to strike a sensible balance between premium collections on the one hand and claims pay-outs on the other,” says Wilhelm von La Chevallerie, managing director of CIB. "Thanks to our disciplined underwriting practices and keeping an effective handle on claims expenses our gross loss-ratio came in at just under 58% within the past year.” The loss-ratio is one of the most important measures for the short-term industry.

"2013 has definitely been one of the most challenging years on record for both CIB and the industry as claims were severely impacted by adverse weather conditions and an abnormally high frequency of medium-sized fire losses,” he says. "Our success in these times can largely be attributed to our principle of choosing quality over quantity.”

CIB achieved significant growth in premium in 2013 without compromising its core values. "What impresses us most about our result is that we’ve achieved them without prejudicing our clients’ cover,” says Wilhelm. "Our claims rejection ratio of 1.5% is among the lowest in the industry while CIB, whose shareholders include RMBSI, have had very few cases referred to the Ombudsman for Short Term Insurance (OSTI).”

Can CIB repeat this achievement in the coming year? "Our focus for 2014 is to ensure that we improve our services to each of our brokers,” says Wilhelm. "This means that our insurance broker network and their clients can look forward to quality underwriting processes and claims efficiencies with ‘best in class’ insurance service.”

The broader short term insurance industry will have to make significant changes to its underwriting, pricing and claims approach if it hopes to follow suit. According to Wilhelm the poor underwriting performance among some of the country’s larger insurers was not unexpected and that something, at some point, will have to change.

Santam – which accounts for approximately 23.1% of the country’s gross written premium – reported an underwriting margin of just 2.8% for the 2013 year while Mutual & Federal (with an underwriting loss of R437 million) and Zurich Insurance (an underwriting loss of some R455 million) performed even worse.

"A combination of unprecedented underwriting capacity, aggressive growth targets and new entrants to the market has resulted in many insurers and UMAs decreasing their clients’ insurance premiums upon renewal,” he says. "You cannot trade profitably in an environment where inflation, currency devaluation and high wage demands drive costs up, while premiums are being reduced, this is a fundamental mind-set change that needs to happen.”

All stakeholders in the short-term industry have come under further pressure due to increasing levels of regulation. A recent regulatory change – the new binder regulations – has resulted in many insurers negotiating binder or outsource agreements with their brokers with a view to protect market share (premium) rather than price sensibly for actual services rendered. The result is that broker-related fees escalated disproportionately last year – effectively reducing risk-carrier’s profitability.

"While we hope for a more favourable set of weather conditions in 2014, we brace ourselves for the impact the exchange rate will have,” concludes Wilhelm. "We believe that the industry cannot continue to post massive losses year-after-year – something needs to change – and simply hoping for benign weather conditions will not be enough.”