Risks that did not exist a decade ago

16 September 2021 Myra Knoesen

The insurance industry is going through unprecedented change, locally and globally. Today, we face risks that did not exist a decade ago, including the challenges posed by COVID-19. Critical discussions must take place to effect the necessary change.

During a virtual media briefing, Santam shared the key findings from the 2020/21 Insurance Barometer Report and what these mean for the industry. The report demonstrates the biggest risks impacting South African businesses, consumers and society as a whole, the impact of COVID-19 on individuals and businesses, the changing role of intermediaries and how the insurance industry needs to adapt. 

Themes and trends

Andrew Coutts, Head: Intermediated Business at Santam discussed the key themes and trends from the research.

The top risks identified by corporate/commercial entities include:

  1. Challenging economy
  2. Pandemic impact on BI
  3. Political unrest
  4. Social change
  5. Cybercrime
  6. Climate change
  7. Regulatory changes
  8. Technological changes

“The COVID-19 pandemic has turned out to be a powerful accelerant of risk. It has forced rapid and meaningful change in our collective behaviour. As a result, the insurance industry is facing seismic shifts to which it must adapt quickly to meet market needs,” he said.

“Weather patterns are becoming difficult to predict in the context of global warming, exacerbated by urbanisation and the impact of increased concentration in big cities. The ongoing technological revolution continues to simultaneously create new risks and business opportunities for insurers and their clients,” he added.

“What started out as an ever-present undercurrent of social disquiet, erupted into full-scale violent and destructive looting and protests in KwaZulu Natal and parts of Gauteng, resulting in not only extensive damage to property and infrastructure but also the tragic loss of life. Amid all this chaos, businesses once again had to close their doors, causing further business interruption and production down-time. The social unrest pushed South Africa into further economic distress,” he emphasised.

Consumer behavioural changes

In terms of behavioural changes as a result of the pandemic, Coutts said that 50% of consumers have cut the number of kilometres driven each week (by 44% on average) – the average consumer is now driving 90km per week, down from 162km. In terms of technology, 16% of consumers upgraded their computers and connectivity to enable them to work from home; three in four report an increase in use of technology over the past year.

“These significant changes in our behaviour have had an immediate impact on the insurance industry. While there has been a general reduction in claims volumes, we have seen a marked increase in claim values,” he said.

The overall volume of PL insurance claims was down by 6% YOY in 2020, compared to 2019. There was a significant decline in motor vehicle claims, which normally accounts for the lion’s share of personal insurance claims. The volume of motor claims for accidents, glass (windscreen), and theft declined by 18% YOY in 2020.

“We put this down to vehicles being parked at home more often. Additionally, curfews reduced the number of accidents due to drunk driving,” said Coutts.

“There was a notable rise in buildings (16%) and household contents (6%) claims – the second and third largest claim categories respectively. Burst geysers continue to be the primary contributor to building claims, with a marked increase of 16% YOY in 2020. A similar increase in other plumbing-related claims. Crime-related claims such as burglaries and theft declined by 16% YOY in 2020/ 2019. Santam’s all-risk claims decreased by 16% over the same period,” continued Coutts

Commercial and corporate trends

“In terms of commercial and corporate trends, the overall volume of property claims increased by 7% YOY in 2020 while the average cost per claim shot up by a staggering 103% in the same period, this was mainly driven by contingent business interruption (CBI) claims. We also saw fewer fire claims than usual as business premises were unoccupied for an extended period,” he added.

“Motor claims volumes, which have been steadily rising every year pre-COVID-19, are down meaningfully: -16% year-on-year from 2019 to 2020, and -6% between Q1 2020 and Q1 2021. Motor claims were still our biggest category by value despite the drop in volumes. The average cost per motor claim was up marginally between 2019 and 2020 (2.8%) and increased further, by 8.2% between Q1 2020 and Q1 2021. This was the second largest commercial claims category by value after CBI. Motor claims volumes are down because people have been driving less since the pandemic started. However, the average cost of claims is up because those accidents that do happen are more severe,” emphasised Coutts.

The impact of COVID-19

The COVID-19 pandemic has stress-tested the products and relationships that tie together insurers, intermediaries, and their clients, according to Coutts. In some cases, those bonds held firm, in others, weaknesses were exposed.

The majority of consumers have been negatively impacted by the pandemic but have shown resilience. Eight in ten consumers were negatively impacted by the pandemic, 60% experienced financial loss, 81% of those who experienced financial loss were able to use savings to see them through. Nineteen percent borrowed money from friends and relatives and eight percent were able to draw on insurance policies. Affordability remains a big challenge. Consumers also made fewer claims in the last year. Only 4% of consumers made claims during lockdown (down significantly from the 23% who made a claim in 2019). Claims were principally made on motor vehicle and home contents policies and the mean value of claims was R19 873 (down from R30 228 in 2019).

Eight in ten corporate and commercial entities were negatively impacted by the pandemic - 62% of corporate and commercial entities have seen a loss in profit, 31% lost clients. On average, profits declined by 38% in SMEs, by 36% in large commercial and by 24% in large corporates. Twenty eight percent had to retrench staff, a further 30% put staff on partial pay and 11% forced staff to take unpaid sabbaticals. The hospitality sector hardest hit of all in terms of business closure (41%), lost profit (84%) and staff retrenchments (59%). Profits also hit hard for 80% of transport and 77% of construction companies. Some businesses were able to adapt their operations - 10% diversified into new product lines, 8% moved to online delivery/sales, but only 3% reported an increase in profit this year (mainly SMEs).

Business interruption accounted for the greatest proportion of commercial claims during the pandemic - 11% of corporate and commercial entities made claims as a result of Covid-19 (19% of hospitality companies have made a claim).

Despite recent difficulties, 83% of large companies and 73% of SMEs are optimistic about future business outlook.

This is positive news… as the pandemic has stress-tested the products and relationships that tie together insurers, intermediaries, and their clients.

Writer’s Thoughts:
In all of the change and challenges presented, we agree that the role of the intermediary will become even more important as the insurance risk landscape evolves. They are, as Coutts mentioned, the essential players in the insurance value chain, making material contributions across the advice, sales, marketing, and claims handling functions. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]





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