Building a resilient short-term insurance industry

Green buildings are a relavtively new enviromental concept. The risk from an insurance point of view remain somewhat undefined... But as more and more companies build for the future, an element of risk is certain.

Risk is a key word in the insurance game. As expected the major industry players focus on managing the underwriting risks in their respective books of business… But are they doing enough to address the myriad of external risks to the industry? The South African Insurance Association (SAIA) is at the forefront of an initiative to make sure that they do...

The best way for any industry to tackle a common enemy is to combine forces. South Africa’s short-term insurers have done so by establishing a Strategic Risk Forum comprising strategic leaders and risk experts in their fields. This select group of industry stakeholders met for their first “think tank” recently and were tasked with identifying what initiatives they felt would be most appropriate to address the top environmental, social and governance (ESG) risks facing the industry. These initiatives will be short listed for further collaboration with relevant stakeholders across the industry.

Regulators come on board

The short-term insurance industry is an important component of the South African economy. For this reason the regulators and government have committed to participating in the risk identification exercise. Representatives from the Financial Services Board and National Treasury attended the first Strategic Risk Forum session, and the National Planning Commission has agreed to send a representative from their office to the next meeting in November 2011. By getting all interested parties involved at this early stage it is hoped there will be wide agreement on the eventual proposals to improve sustainability across the industry.

The definition of sustainability, as used at the forum meetings, is the ability of the short-term insurance industry to remain relevant, inspire confidence in stakeholders and offer products and solutions within the South African market in such a way that it promotes but does not harm the environment or communities.

Labelling the dangers

The top 10 ESG risks identified by 18 insurance company chief executives and 25 Strategic Risk Forum members have been clustered in the table below. The thought processes in identifying these risks will be distributed through SAIA and the Financial Intermediaries Association (FIA) as part of an ongoing communication and awareness campaign that will be launched in October.

The forum wants to urgently tackle five areas of significance. These include the human capital challenges within the industry, to strategically review the training and development practices across the industry, to implement strategic initiatives to transform the industry supply chain, to understand, review and build a landscape of resilience with regards insurable perils and finally, to explore an industry venture that facilitates a community-based approach to utilising insurance principles and risk mitigation tools in insurable events.

Operational initiatives such as those listed above should address many of the concerns the regulators and government have with the financial services sector. The inclusive discussion between key short-term insurance stakeholders will go some way to strengthening relationships between the industry and its supervisors. There is a willingness to assist the regulators as they develop the “twin peaks” model of financial sector oversight going forward.