Brokers add value through economic turmoil, extreme weather, loadshedding
The challenging and evolving risk environment creates opportunities for brokers to differentiate themselves through unique value propositions. This was among the findings of the 2023 Insurance Barometer, a comprehensive survey of South Africa’s insurance market conducted by Santam. “The 2023 Insurance Barometer illustrates the value of insurance during tough economic times,” the insurer said during the report launch, held in Sandton recently.
Loadshedding is decimating SA Inc
The latest survey was informed by a series of online and Zoom-based interviews completed between March and June 2023, gathering the market perceptions of 167 brokers; 358 businesses; and 404 consumers. Atang Matebesi, CEO, Santam Client Solutions, introduced the survey findings with some economic context.
He pointed out that high inflation and rising interest rates had put South African consumers under significant pressure over 2022-2023, and that loadshedding was costing an already weak economy billions of rand each year. “In total, we put the cost of loadshedding at about R300 billion or 5% of GDP,” he said. The worst affected industries include agriculture, forestry and fishing and manufacturing.
It came as no surprise that both commercial and personal lines focused insurance brokers and risk advisers singled out loadshedding as a key risk, alongside economic challenges and socio-political risks, to name a few. The challenging economy and socio-political risk also dominated the consumer segment, encompassing both businesses and individuals. “We are faced with unprecedented change,” Matebesi said, mentioning the increased frequency and severity of natural catastrophe losses; the effect of high inflation and soaring interest rates; the rising cost of repairs; and foreign exchange fluctuations as key factors in a complex risk environment.
Positioning for, and responding to key risks
The Insurance Barometer survey outlines the key risks that South Africa consumers face and identifies trends that insurers and insurance brokers need to position for and respond to. “We conduct this research to demonstrate the value of insurance in tough times,” said Andrew Coutts, CEO Santam Broker Solutions, during the report launch.
He told the assembled media that while insurance was often mislabelled as a ‘grudge purchase’, it remained a critical component of the consumer’s response to the evolving risk landscape. However, brokers and insurers had to reimagine how insurance fit into the broader risk identification, risk mitigation and risk transfer dimensions.
Coutts commented on the various trends that had emerged from the 2023 research, taking pains to explain risk perception variances across respondent groupings. “Climate change, infrastructure concerns and socio-economic challenges have created a tough environment for local insurers who bear the responsibility of ensuring their balance sheets can sustainably withstand the cost of the risks dominating the environment they operate in; while also protecting the financial well-being of clients, and the safety of communities,” he said. Santam shared some of its 2022 and first-half-2023 claims data to illustrate the impact of some of these risks.
“Two standout claims trends developed in both the personal and commercial lines categories over the past two years that required corrective actions; the most notable being an exponential escalation of power surge claims related to loadshedding, followed by high-value vehicle hijacking and theft,” Coutts said. Power surge claims across the commercia and personal lines ‘books’ were up 39% in volume and 48% in value for 2022, on top of the 37% and 53% increases respectively in 2022 over 2021. On the motor side, high-value vehicle ‘hijacking and theft’ claims increased by 128% year-on-year in 2022!
Infrastructure woes send claims sky high
On climate change, Santam noted that the April 2022 KwaZulu-Natal floods were followed by a number of significant flooding events in the first half of 2023, notably flooding in the Cape Winelands and Stellenbosch in June. “There is no doubt that our infrastructure challenges exacerbate our climate-related claims costs; we have pluvial and fluvial flooding channels that worsen the impact of high rainfall in short periods of time, with economic concentration in cities making it difficult to manage the impact of weather events in our cities,” Coutts said. Affordability becomes an issue, as insurance premiums rise to accommodate extreme weather risks.
All stakeholders will have to think differently about insurance products, how insurance responds to future disasters, and what steps consumers can take to mitigate their risk exposures. Coutts shared the survey findings on how households were responding to loadshedding as one example. Around 34% of consumers purchased a UPS device; 34% installed inverters; 24% bought generators; and 20% went ‘all in’ with a sola installation. “There is no doubt that South African consumers are responding to the evolving risk landscape,” he said. Case in point, three quarters of consumers were concerned or ‘very concerned’ about the threat of extreme weather events.
“As insurers, we recognise that price cannot be the only solution to addressing increasing risk; the focus is shifting to what policyholders and potential policyholder can do to improve their risk positioning,” Coutts said, adding that risk mitigation efforts could reward consumers whether or not they “took part in the insurance cycle”. Power surge devices; installing anti-theft devices in vehicles; and maintaining residential property to limit storm damage are all examples of reducing personal risk exposures. Brokers can differentiate their value proposition by helping clients to understand what drives their insurance premium, and what steps they can take to limit increases.
Your clients want to mitigate risks, lower insurance costs
According to Coutts, one-in-three commercial and corporate insureds understand that the evolving risk environment is going to drive up their insurance costs, and are keen to take active steps to find ways to mitigate and manage risk. “This will require a combination of a broader and more holistic, tailored solution from an insurance perspective with good risk management practice and expertise coming through,” he said. This resonated with the closing remark by Matebesi, who said: “Insurance expertise is a vital component in the ongoing debate on building sustainable businesses and communities; and this is especially true in this era of escalating systemic risks, which is what the 2023 Insurance Barometer tries to outline”.
There is a notable shift towards communities coming together to mitigate risks, as evidenced by community WhatsApp groups that warn members about crime trends, or infrastructure issues. The future, surmised Coutts, will see insurers and insurance brokers working with communities “to drive not just the protection of the claim, but the mindset of growth, sustainability and wealth creation for both consumer and community. “The Insurance Barometer hopefully makes consumers and businesses more aware, driving the industry to be more relevant and more on point for all stakeholders,” Coutts concluded.
Writer’s thoughts:
The 2023 Insurance Barometer is a standout piece of research that not only identifies key insurance themes and trends, but assists insurance brokers and their clients to position for evolving risks. Do you find the findings of industry research useful in your risk advice practice? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
