SA businesses unlikely to experience drastic insurance hikes following global catastrophes

While insurance premiums in countries such as the US and Japan have risen sharply as a result of the spike in global natural disasters in the first half of 2011, it appears likely that South African businesses will not experience similar increases.

A recent study released in July indicated 2011 as being the highest catastrophe loss year ever, breaking records for already reaching economic losses of $265 billion. Insured losses weigh in around $60 billion, nearly five times higher than the average since 2001.

According to Wilhelm von La Chevallerie, Director of Actuarial & Risk Services at CIB Insurance Administrators (CIB), the 9.0 magnitude earthquake in Japan and subsequent Tsunami alone caused the reinsurance rates in that country to go up as much as 70%. The US has also seen increases between 20% - 40% due to its global business involvement and recent loss-experience.

“Reinsurance is an international game, which means that most reinsurers have felt the combined impact of the earthquakes in New Zealand, Japan and the subsequent tsunami, floods in Australia, China and tornados in the US.

“If the losses are significant, then the available capital to back these is reduced and may result in an increased margin requirement on the risks accepted by the reinsurer,” von La Chevallerie explained. “The simple equation of supply and demand may then lead to an increase in reinsurance premium rates. These increases, in turn, increase the expenses or costs incurred by insurers, who could be pushed to increase the premiums they charge their policyholders.”

However, he says South African businesses are unlikely to experience any significant premium hikes, as the impact of the global catastrophes are outweighed by a number of other factors. “Firstly, South Africa offers reinsurers a ‘diversification opportunity’. This is because the country is unlikely to experience claims similar to those being triggered by catastrophic events that have been witnessed in other parts of the world.”

Furthermore, South Africa’s natural catastrophe claims are significantly lower than the economies that have been affected by natural disasters. “The local insurance industry has recently enjoyed positive results with low loss ratios and this should positively influence the market and keep premium increases to a minimum, provided nothing drastic happens over the next six months,” concludes von La Chevallerie.