Brokers sink their teeth into Africa, South Africa risks

The annual risk reports produced by the likes of Aon, Allianz and the World Economic Forum (WEF) are useful indicators of the risk landscape that non-life insurance brokers, insurers and risk managers have to navigate; but to extract value from these write-ups requires a deeper understanding of each risk in the context of risk identification, mitigation and transfer disciplines.

Brokers, insurers respond to evolving risks

Some time ago, this writer offered his thoughts on the global, Africa and South Africa risk landscapes as presented in the Allianz Risk Barometer 2024. Today, following a webinar to officially launch the report, FAnews will offer a more detailed discussion of the Africa and South Africa specific risks, including comment on how brokers, insurers and reinsurers are responding to same. “We will cover the top risks in the Africa and Middle East region before considering the business risks facing stakeholders in individual countries,” said Thusang Mahlangu, CEO of Allianz Global Corporate and Speciality (AGCS) Africa, introducing the webinar. 

The Allianz Risk Barometer is informed by 3 069 risk management experts from 92 countries and territories, allowing the insurer to present a rich tapestry of global, regional and country-level risks. For the Africa and Middle East region, cyber incidents topped the table of business risks for the coming year. “This risk ranked number one in over 17 countries and regions [with] data breach standing out as the most concerning cyber threat followed by attacks on critical infrastructure and physical assets,” said Senzile Ndlozi, Business Development Manager at Allianz Commercial. 

There was an alarming increase in the number of regional respondents who experienced a ransomware attack in 2023, up by 50% on the prior year. “This experience highlights the need for companies to prioritise cybersecurity measures,” Ndlozi said. Business interruption (BI) climbed up one place from position three in 2022 to second place in the latest assessment for the Africa and Middle East region. AGCS pointed out that companies in the region relied heavily on supply chains for critical goods and services, and that the elevation of this risk post-pandemic illustrates the interconnectedness and volatility of risks facing global business. 

SA infrastructure crisis not unique

Macroeconomic developments encompassing austerity programmes, inflation and fiscal and monetary policy occupied the third rung on this region’s risk ladder, reflecting Africa’s changing economic landscape. This newsletter will not explore each of the risks listed in the report, but it is worth mentioning the risks that occupied position four and six. In fourth, the region listed critical infrastructure blackouts or failures, up from eighth position in 2023, and in sixth, a new entrant for the region, natural catastrophe. For the inquisitive, changes in legislation and regulation rounded out the top five. 

The growing awareness around natural catastrophe is not unexpected in the context of climate change and mounting NATCAT insurance losses. Insured losses following earthquake, flood, storm and wildfire exceeded USD100 billion for the fourth consecutive year in 2023 driven by the highest-ever damages bill following severe thunderstorms in the United States. A number of Africa and Middle East countries also suffered significant natural catastrophe events last year including earthquake in Morocco and Turkey-Syria and dam bursts following heavy rains in Libya. 

South Africa’s top risks are slightly different to those of the region it sits in. Geoff Tanton, Head of Property and Mid-Corporate at AGCS South Africa said it was no surprise that critical infrastructure failure and blackouts topped the country’s list. “South Africa suffered through an unprecedented 332 days of loadshedding during 2023 and this remains foremost in the minds of both business owners and the broader public,” he said, before commenting on how this emerging risk impacted insurers’ and reinsurers’ risk exposures and underwriting decision making. 

Unstable electricity introduces new perils

“Loadshedding has brought new risks to bear including the potential for fires and explosions caused by extended use of generators and other sources of backup power, especially where these machines are running for longer periods of time than intended and therefore cannot be maintained and serviced,” Tanton said. The country’s electricity supply woes have also highlighted the lack of maintenance and new builds in the critical water infrastructure space, and there are growing fears that water shedding may become the next infrastructure-related crisis the country will have to navigate. 

Insurers and reinsurers are not impressed by the loadshedding phenomenon. Not only are clients at heightened risk of losses due to power outages, but the steps taken to mitigate power outages introduce new exposures. One example is that interrupted electricity supply heightens the risk of fire protection systems not operating, thus increasing exposure to losses. “We encourage our clients to build their resilience by investing in off-grid electricity and backup water supplies in the form of water tanks and booster pumps to be less reliant on municipalities when dealing with these exposures,” Tanton explained. 

The second and third risks on South Africa’s top 10 are in line with those across the region and world. AGCS listed cyber incidents at number one worldwide [second in SA] with this risk impacting a wide range of industries and businesses. Tanton said “cyber threats are constantly evolving as hackers and criminals gain access to new technologies, finding new ways to exploit old vulnerabilities; hackers are beginning to use AI-powered language models to increase the speed and the scope of ransomware attacks as well as create new malware and produce convincing phishing emails and deep fakes”. BI and supply chain disruptions featured in third place in SA. 

Elections could fuel civil unrest

For South Africa, natural catastrophe has crept up from position six in 2023 to position four currently. Webinar attendees were reminded of the serious flood event along the KwaZulu-Natal (KZN) coastline in April 2022, with severe floods, wildfires and windstorms tearing into parts of the Western Cape over multiple years. Glossing over energy crisis, in position five, the attention shifted to political risk and violence. The full impact of this peril is still fresh in the minds of most South Africans following a looting and rioting event in parts of Gauteng and KZN in July 2021. “More than half of the world’s population is going to the polls this year, SA included,” Tanton said. “Elections raise concerns about the fuelling of populism and polarisation which may manifest in increasing civil unrest activity”. 

It was left to Daniel Schroeder, Senior Risk Engineer at Allianz Commercial to offer Africa-specific insights for the 10 African countries that the survey covered. He kicked off his part of the presentation by noting that governance-related risks featured strongly across the Africa participants. In contrast, cyber incidents were less prominent on average, and did not even make it to the top-10 in Cameroon. Additionally, while the perceived risk in changes in legislation; macroeconomic developments; and fire were on the rise, concerns over natural catastrophe were in decline. Here follows a whistlestop tour of Schroeder’s observations. 

In Nigeria, the top business risk for 2024 was changes in legislation which posed significant challenges for businesses operating there. AGCS urged countries with exposure to that market to stay updated and ensure compliance to mitigate potential risks. Mauritius stood out as the only Africa respondent to indicate shortages of skilled workforce in its top 10, with that economy having one of the highest perceived labour shortages globally. Cameroon featured natural catastrophe as a new entrant at position five while BI and supply chain incidents fell from first in 2023 to 10^th. 

Cyber tops risk tables in Kenya and Uganda

“Cyber incidents are at number one in Uganda with a staggering 48% of respondents expressing concern,” said Schroeder. “Macroeconomic developments and theft, fraud and corruption were identified as the joint second risks while critical infrastructure failures featured at number seven despite the country suffering a number of nationwide blackouts in recent years”. Kenya’s top risk was cyber incidents whereas Ghana went with macroeconomic developments in the midst of its ongoing fiscal crisis. 

Ivory coast, meanwhile, saw political risks and violence top of its list, following the removal of its Prime Minister and dissolution of its government late in 2023. Although falling across the continent, natural catastrophe was in focus in Morocco following the September 2023 earthquake. The country also experienced severe floods in the latest year.

 Schroeder offered an apt close to the webinar: “The important conclusion from the latest Allianz Risk Barometer is that each region of the world presents unique challenges; industry stakeholders need to learn and share knowledge to ensure that we overcome risks together”. 

Writer’s thoughts:
Disruptions or failures at electricity and water infrastructure have huge consequences for both commercial and personal lines insureds. Have you made changes to your client’s short-term insurance covers to accommodate loadshedding? And were these changes by choice or stipulated by insurers? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.

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