A volatile environment

Cedric Masondo, MD, Sasria

The South African insurance industry has faced two challenging years in terms of dealing with a volatile operating environment. This is evidenced in the various annual reports that are released, both from insurers and industry bodies.

This was highlighted in Sasria’s recently released 2017 Integrated report which highlighted issues that are beyond the control of the insurer.

A weak environment

While many economies around the world are growing, the South African economy is battling to find its feet. After being placed in a technical recession earlier in the year, the economy fought hard to dig itself out of this hole.

However, we are not out of the woods yet. Sasria MD Cedric Masondo points out that the fact that the economy is not growing is a problem.

“The state of the economy saw a continuation of retrenchments in these and other sectors, with unemployment at its highest level (28%) since 2003. The inflation rate is moving below 6%, mainly due to a slowdown in prices of food and transport. The social environment, has been severely affected by this; we have witnessed a dramatic increase in service delivery protests and increased dissatisfaction by students concerning tertiary education fees as part of the FeesMustFall campaign,” said Masondo.

While there have been little to no FeesMustFall protests this year, Sasria includes the losses incurred at the end of 2016 in its latest report.

Busy times

Predictably, this volatile environment has had a significant impact on insurers.

Masondo pointed out that gross insurance claims during the period under review amounted to R766 million which was 30.8% above the previous year.

“The number of claims increased by 22% and the severity increased by 29%. The biggest drivers remain service delivery related and university student protests which came to about R325 million,” said Masondo.

The bigger picture

Added to these problems are growing concerns that the operational environment is increasingly becoming technology driven. Insurers cannot do business the way that they are used to and have to come up with innovative ways to market existing products as well as develop products that are fit for the new environment.

The challenge facing insurers is how to remain relevant through all this change. Masondo points out that it is possible and that Sasria is attempting to achieve this.

“Despite the increased claims, our revenue has grown. In growing our revenue, we continue to improve our operational efficiencies and ensure that customers’ experiences with us are seamless. Despite a dramatic increase in the frequency and severity of claims, our commitment to our customers has remained unchanged. This was supported by the Short-term Insurance Ombudsman’s 2016 report. In the face of the increase in claims, the claims rejection ratio remains negligible, with only two complaints sent to the Ombudsman,” said Masondo.

He added that the company is looking to increase its customer base to include a far larger portion of the South African public and achieve greater financial inclusivity. The project is aimed at reaching the currently uninsured market and making our products more accessible.

Top concerns

Increased insurance risk as a result of strikes, protests and other special risks remains Sasria's top concern.

To address this issue, Masondo pointed out that Sasria designed specific stress and scenario tests to measure the impact of increased strikes and service delivery on Sasria’s financial strength in its own risk and solvency assessment.

“Reinsurance purchase decisions were based on these stress and scenario tests. Our reinsurance broker further conducted specific probable maximum loss studies. Our Underwriting, Claims and Risk departments also track the frequency and severity of strikes. Actual losses incurred compared to budgeted losses are also tracked monthly,” said Masondo.

Skills development and attracting key skills are other concerns that Sasria must perennially deal with. To address this issue, Masondo pointed out that talent and succession pools were created during the year for key positions in the company to ensure continuity for high-risk roles.

“Critical positions were identified by the Remuneration and Nomination Committee, followed by psychometric assessments and talent conversations; we feel that we are making progress in addressing this,” said Masondo.

Editor’s Thoughts:
All companies need to find their own way to deal with the current economic and operational environment that they find themselves in. Sasria does offer some interesting insight into how they deal with the issue, but it is by no means a silver bullet. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

Ends