Intermediaries… perfectly positioned to become risk advisers
What can pandemics teach us about risk management and planning for future disruptions?
FAnews spoke to Andrew Coutts, Executive Head of Intermediated Business at Santam Insurance about how best to manage risks in an ever-changing and complex world.
Premiums off the back of higher risks
According to Coutts, the pandemic exposed the existence of systemic risks in our society. “Systemic risk refers to risks that typically play out as a chain reaction in a system resulting in widespread losses to individuals, businesses, industries, and even countries.”
“Such risks are a threat to both resilience and access to capital, because they are increasingly difficult or expensive to insure against. The pandemic also triggered a raft of exclusions and higher premiums both locally, and globally, in insurance and reinsurance contracts,” he said.
“Similarly, reinsurers are raising their catastrophe reinsurance premiums off the back of higher risks associated with climate change. The insurance industry, along with its public sector counterparts, must adapt to meet these challenges to strengthen resilience and access to capital,” he emphasised.
Cover for systemic risk
The ability of insurers to provide cover for systemic risk largely depends on whether reinsurers are willing to underwrite the risk, according to Coutts.
“As the economic impact of COVID-19 became clear, reinsurers moved quickly to exclude pandemic risk from their coverages. Without the ability to diversify such risk, even in the context of a global premium pool, the potential liability of a pandemic was simply too large for them to cover, deeming it effectively ‘uninsurable’,” he said.
“Uninsurable risks, characterised by large numbers of people and businesses suffering a loss at the same time, are usually addressed through government relief programmes. Similar exclusions are commonly imposed in the event of a nuclear disaster, terrorism, and war,” he added.
Another way of insuring against an event like a pandemic, Coutts said, could be to build up a fund over time in partnership with government, something that everybody can draw from when a pandemic hits.
“Individuals and businesses must share the responsibility to protect themselves against uninsurable risks. For the most part, protection must come in the form of better risk management that culminates in risk reduction or even prevention. We believe it falls to insurance industry stakeholders to drive awareness around such practices,” continued Coutts.
Risks businesses face
When asked about the SMME environment, the risks that these businesses face and how best to manage these in an ever-changing and complex world Coutts said, “the reality in South Africa is that many individuals do not have the resources to buy insurance. Yet, they are the ones who need it most, to keep extreme poverty from their door when systemic risk events occur.”
Again, Coutts mentioned the private and public sectors have the combined resources to find a solution; “it is already being done elsewhere on the continent.”
“More importantly, a thriving insurance sector is a critical cog in any healthy economy. Insurance makes people and businesses more resilient. Adequate cover helps them to bounce back when things go wrong. It is the safety net that allows people and companies to focus on what makes them thrive,” he emphasised.
Value-add of brokers
Risks for individuals and businesses, according to Coutts, are increasing by the day. In this climate, clients need to proactively prevent risk as much as they need solutions to transfer it.
“The days of intermediaries simply selling generic products are limited. With the escalation of risk exposure, plus affordability issues and cheaper alternative channel solutions, product-push-only business models are ageing. Remaining relevant is dependent on a real understanding of risk and the ability to tailor relevant solutions for client needs. That means client-centricity will be core. Its imperative intermediaries are armed with the tools and knowledge to know what clients need – now and in the future,” he said.
“Intermediaries are perfectly positioned to become risk advisers and help make the cost of insurance sustainable, while creating true peace of mind for clients. Going forward, we will rely on our intermediary partners more than ever, as they go beyond being brokers to becoming risk advisers,” he added.
“This means ensuring insurance becomes part of a holistic solution to manage risk. As we move into our increasingly uncertain risk future, intermediaries will be differentiated not just by these factors above, but also by their risk and advice tools and early detection mechanisms that enable risk prevention. By also helping you understand and avoid risk, you reduce the need to transfer risk, significantly reducing the cost of insurance and providing true peace of mind,” concluded Coutts.
Writer’s Thoughts
Sound risk management is a critical element in this industry. With the ever changing and unpredictable environment it is important for intermediaries and insurers to actively advise clients on risk management strategies. Do you agree with this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts myra@fanews.co.za
Comments
A huge problem is that no two insurers have cleared out with one another what is understood by risk improvement and how it differs from risk avoidance by insurer and risk transfer back to proposer. Report Abuse