Brokers help maintain underwriting discipline
You can scream about the benefits of artificial intelligence (AI) and technology until you are blue in the face, but to retain your edge in the competitive short-term insurance market requires disciplined underwriting and sustainable pricing.
NATCAT losses on the rise
A recent Old Mutual Insure (OMI) ‘Media Meet and Greet’ event spilled the beans on a range of issues impacting South Africa’s leading insurance brands, not least among them the rising frequency and severity of natural catastrophe events. Soul Abraham, CEO at OMI, explained that brokers, insurers and reinsurers were at the precipice of a new risk era, shortlisting AI, climate volatility, evolving customer expectations and soft market conditions as key focus areas for the coming years.
“To succeed, insurers will have to combine the fundamentals of insurance with some of the new technology coming through,” he said. Navigating soft markets was singled out as a key challenge facing insurers presently. A soft market typically occurs due to the overlap of a period of benign claims and surplus underwriting capital. In such conditions, insurers compete aggressively for business, leading to lower premiums, broader cover and looser underwriting terms.
Competition is great for consumers, but it creates long-term sustainability risks for insurers. According to Abraham, local insurers are seeing an “aggressive softening of the market” following a lower-than-trend claims experience in 2024 and 2025. “We have also seen the entrance of some of the European brands back into the country, either through the Lloyd’s market or by way of fronting agreements, undercutting the South African market, especially in the corporate property or specialist areas,” Abraham said.
Economic recovery undone by war
Turning to the operating environment, the CEO noted that the world had not yet fully recovered post-COVID, and that the current Middle East conflict would likely douse the embers of the GDP growth recovery seen in 2025. “We expect inflation to be impacted,” he said. “It is hard to tell by exactly how much, but it will be material.” In early April, local consumers faced a R6.06 increase per litre of 93 Octane petrol and R10.51 for ‘clean’ diesel. The shock was partly offset by a last-minute government decision to cut R3.00 per litre from its general fuel levy.
OMI is counting on its diversified product offering to insulate its stakeholders against slow economic growth as well as smooth overall results during above-trend catastrophe loss years. The insurer operates five insurance licences across 11 divisions, including direct insurer, iWYZE; health insurer, GENRIC; a majority ownership of HCV cover provider, One Insurance; and trade credit provider, CGIC. This diverse portfolio helped to lift gross written premium (GWP) 7% higher in its 2025 financial year, to R23.4 billion. The insurer also posted a solid 6.8% net underwriting margin, in the middle of its 5-8% target range.
Abraham hinted that insurers would lean on AI and data analytics to reduce the impact of geopolitics, inflation and skills shortages on underwriting. “We need to balance innovation, which is like a buzz word for AI, data and technology, with old-school disciplined underwriting and capital allocation,” he said. The media was told that consumers were driving digitalisation in non-life insurance distribution and product design because they want similar experiences from their insurance provider as they get from banks and other digital service providers.
Nuanced customer experiences
“This customer experience is a collective effort, and we face interesting technological challenges in integrating distinct service providers from electricians to glass repairers to plumbers,” Abraham said. “To bring all of that together is slightly more nuanced than in banking or life insurance.” The challenge is to deliver better risk insights, faster service and responsive underwriting decisions across the commercial and personal lines sub-classes of non-life insurance business.
It is more difficult to introduce AI in general insurance than one imagines. According to Abraham, non-life insurance spans a wide range of consumers (from individuals to small, medium and micro-enterprises (SMMEs) to large firms and even multi-nationals) and cover types, spanning simple loss or damage to assets all the way to complex liability covers. He said the industry was busy with chapter one of integrating AI across its activities, and that chapters two and three would follow over the coming decade.
“We have not yet seen the full potential from AI; but you have to lay the foundations to take advantage of it,” Abraham said, explaining the insurer’s cautious ‘go slow for now’ approach. The challenge and opportunity set linked to the emerging technology were described in detail. On the plus side, insurers are banking on AI to deliver faster claims processing, enhanced risk and capital modelling and improved fraud detection. On the flipside, they must be mindful of AI hallucinations and incorrect outputs, data privacy and leakage and expanded cyber threat.
Explaining interconnected risks
Ricardo Govender, Chief Actuary, Risk and Sustainability Officer at OMI, took over the meeting to offer deeper insights into some of the interconnected risks facing short-term insurers presently, including climate volatility, geopolitical tension, infrastructure strain and poor economic growth. “Risks are becoming more frequent, more severe, very interconnected and ultimately less predictable and more difficult to manage,” he said, sharing a multi-decade graph of natural catastrophe losses in South Africa and globally.
The key message here is that insurers cannot view risk in isolation because one risk has a potential multiplier effect on another. So, for example, climate volatility, which exhibits as severe storms and flooding, causes greater losses due to the accumulation effects of strained infrastructure. “Infrastructure strain tends to accumulate or amplify the losses caused by a particular extreme weather event,” Govender explained. He offered another example of cause and effect in the Middle East conflict context.
A geopolitical event causes global oil prices to surge, quickly converting into higher fuel prices domestically. Fuel price hikes cause inflation, reducing household disposable income and potentially causing a decline in an insurer’s GWP. At the same time, the inflationary pressures affect the insurer’s loss ratio through higher charges from third-party service providers. “A component of our motor loss ratio is vehicle towing post-accident; if costs are going up for the towing companies, that flows through into our loss ratio,” Govender said.
Changing risk exposures
Zooming further out, the risk expert pointed out that insurers had to consider the change in consumer behaviour that a certain risk event might contribute to. As fuel prices go through the proverbial roof, consumers may abandon diesel and petrol cars in favour of electric or hybrid vehicles, fundamentally changing the risk profile across an insurer’s book. To trade sustainably, a non-life insurer has to consider economic effects, the impact on loss ratios across different cover types and the likely knock-on effect on the mix of insured assets.
Globally, insurers and reinsurers are projecting USD186 billion in annual NATCAT-related insured losses, with the one-in-100-year loss being as high as USD400 billion. South Africa is not as exposed to natural catastrophe losses as the United States and others, but that does not mean an outlier loss event cannot cause havoc. In April 2022, floods in KwaZulu-Natal cost the broader insurance industry around R30 billion. “The US sees more tornadoes and those type of storms; in South Africa, flood and wildfire. are our two biggest perils,” Govender said.
Abraham closed his session with comments on distribution and skills, saying that both distribution and hiring would look different as AI and technology adoption accelerated. “Our founding Mutual & Federal brand was known as the school of insurance, and we are hoping to bring that back through our Green Beret [and other] programmes,” he said, commenting on an initiative aimed at bringing over 200 generally black, short-term insurance advice-focused individuals into the business. An insurer that excels at distribution and skills development is arguably better-positioned to deliver disciplined underwriting and cost-effective insurance.
Diversification to counter disruption
Over the short- to medium-term, the business will lean heavily on its diversified product offering to deliver the desired 5-8% net underwriting margin. “Our sweet spot is to make between R5 and R8 profit, including investment income, from every R100 our customers pay in premium,” Abraham concluded. “In a good year, it will be closer to 8%, if there is a bit of disruption due to climate change or geopolitics, it will drop lower.
Writer’s thoughts:
Soft market conditions may please policyholders in the short term, but they pose longer-term sustainability challenges. How should brokers and insurers balance competitive pressure with the need for pricing discipline? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
