Brokers will steer the future risk narrative
Major catastrophes such as the Covid-19 pandemic and ensuing lockdowns, and more recently the civil commotion in Gauteng and KwaZulu-Natal, have stress-tested the products and relationships that bind short-term insurers, insurance intermediaries and their clients. According to Andrew Coutts, Head: Intermediated Distribution at Santam, disasters of such magnitude present opportunities for non-life insurance stakeholders to reassess their approach to risk. Brokers, in particular, will play an active role in steering future risk discussions with their clients.
The 2020/21 Insurance Barometer report is here
Coutts was commenting during the launch of the insurer’s 2020/21 Insurance Barometer report, which highlighted challenging economic conditions, the pandemic impact on business interruption, political unrest, social change, cybercrime and climate change as major risk themes. 62% of commercial and corporate respondents singled out the weak economy as their main short-term risk concern. And 57% flagged the continued fall-out from suboptimal performance of business interruption covers through pandemic. The pandemic has also exposed a number of insurance industry shortcomings that require the industry to position differently for future systemic risks.
Industry stakeholders have been wrestling with how to insure future pandemic risks for some time, with many asking whether such risks are even insurable. In this context, thinking is turning towards some kind of private- public partnership similar to what exists in the Sasria model. “The reality is that from an insurance perspective, the absolute size of the potential losses [following pandemic or widespread civil commotion] make it very difficult to charge a premium that can correlate with the extent of the risk; it is simply too expensive to insure,” said Coutts. Sasria offers a blueprint that could form the basis of a solution. Catastrophe bonds are another possible alternative but are seen by most as an expensive option. Coutts does not believe that we will see a return of the open-ended business interruption type policies, as these will always need some form of sublimit to be economical.
“We need to see risk management as part of the overarching risk transfer solution,” said Coutts, before singling out intermediaries as a crucial component in the risk identification and risk mitigation process. More than 80% of Santam’s business is brought in by brokers and tied agents. These intermediaries are responsible for navigating their clients through an increasingly complex product and risk environment which demands a new approach to risk management. The days of simply increasing premiums on a standard basket of cover are over; nowadays brokers and insurers must “fundamentally shift the inflection point of value”. And this requires a refocus from risk transfer via an insurance policy towards risk identification and risk mitigation.
Responding to risk in innovative ways
Small risk practices such as those that make up much of Santam’s distribution force are well placed to educate the market about the need to respond to risk in innovative ways. “It is a very exciting time for the intermediary,” said Coutts. Not only are direct insurers expanding their distribution functions to incorporate traditional, human advice; but there are growing opportunities for intermediaries to add value in the commoditised personal lines market by combining the best that technology can offer with the human touch. “To remain relevant in the personal lines market, intermediaries should explore new distribution methods such as the referral model, where they source quotes on behalf of clients and then, for a fee, hand over the client to the insurer who manages all the administrative tasks,” suggested Coutts.
The 2020/21 Insurance Barometer also revealed that 75% of commercial and corporate clients wanted face-to-face engagements with their intermediaries… These respondents indicated the broker’s ability to understand their insurance needs; ability to assist with claims handling; and insurance knowledge and expertise as the main reasons for buying insurance through a broker. “Intermediaries have the means to play a critical role in helping clients understand intricate policy details, in demystifying complex policy language, in handling claims and in sourcing solutions that meet client needs,” Coutts said.
One of the issues raised during the recent catastrophes is that insureds often have a poor understanding of the nature of the cover on their policies. It would certainly appear that many of the issues that cropped up with pandemic-related claims were a direct consequence of shortcomings or misunderstandings that stemmed from policy wordings, with 81% of intermediaries saying that more simplistic policy language is needed. Santam acknowledged this issue in the Insurance Barometer; but wrote that the industrywide desire for increasingly comprehensive cover, at lower cost, within a more complex risk environment puts a natural ceiling on the simplification of policy wording.
Can we demystify policy wordings?
“There is a real focus from the industry around policy wording [as we consider ways] to demystify it; and again, the broker has never had a more important role to play,” said Coutts. He added that commercial and corporate clients wanted their risk advisers to have a clear understanding of the complex risk landscape; have excellent knowledge of the insurance policy’s response to such risks; and be able to give a clear assessment of which risks were on cover on a policy and which not. The intermediary can deliver on these requirement by building personal, trust relationships with clients, among other functions.
“Intermediaries are integral to the success of insurers; they are essential players in the insurance value chain, making material contributions across the advice, sales, marketing and claims handling functions,” said Coutts, adding that Santam believes the role played by the intermediary will become even more important as the insurance risk landscape evolves. “The true value of an intermediary is recognised in difficult times,” he concluded. “During the pandemic, many intermediaries proved their value through strong claims advocacy and the proactive restructuring of policies to save costs or improve the appropriateness of cover”.
Writer’s thoughts:
Multi-billion rand catastrophe losses following pandemic and widespread civil commotion in Gauteng and KwaZulu-Natal have shaken ‘tried and tested’ insurance models to the core. Some will argue that the mere fact that the non-life insurance industry has, for now, survived both catastrophes proves that the system works… Others will focus on the disconnect between policyholders’ cover expectations versus actual experiences. Do you think South Africa’s non-life insurance industry has performed adequately through the 2020/21 catastrophe shocks? And how do you expect it to change to accommodate future shocks? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za
