Seven key insights from SA’s non-life brokers

If you are involved in the fast-paced world of non-life insurance broking, then you should be quite familiar with the dynamic and challenging environment that you and your peers face. Each day, you have to navigate a complex regulatory landscape, endure economic headwinds and accommodate shifting insurance market trends … all while playing your part in contributing to client and insurer sustainability.

The 2024 Stokes Media Broker Perception Survey, completed as part of the 4th edition of ‘Everything you need to know about non-life insurance in SA’, offers a valuable snapshot of brokers’ views on the big picture themes affecting stakeholders across the insurance industry. Today’s newsletter will dive into the cheekily titled Magnificent Seven of broker insights, taken directly from broker inputs to the survey. Your writer hopes this approach will unearth some of the key challenges facing brokers during 2024. 

1. Economics and politics

The South African economy remains fraught with macroeconomic pressures, from slow growth and high inflation to political instability. In Q1 2024, when the survey was conducted, brokers were feeling the effects of the country’s growth and inflation disconnect, and eyeing the upcoming 2024 national election with a sense of foreboding. “There is a desired inflation from an insurer perspective of between eight and 12%; but the economy is inflating at around 5%, making the price discussion with clients quite difficult,” commented one broker. 

Another broker observed that, “The South African political landscape is still eyed with some suspicion by the international markets, although there is a feeling that should our elections run smoothly, irrespective of the actual outcome, the pressure on South African risks from a pricing point of view may soften somewhat.” Over the past few years, The broader economic and political context has made it difficult for brokers to balance insurer expectations with clients’ financial realities. Brokers have addressed these challenges by working closely with clients to reassess risk and explore new insurance solutions. 

2. Regulatory compliance

Compliance continues to be a significant burden on brokers, with stringent regulations requiring high levels of administrative and operational oversight. This burden is especially heavy for smaller brokerages who struggle to allocate resources effectively. As one mid-size broker commented: “Compliance and regulation remain a challenge; it is time-consuming, comes at a cost and poses a big risk to brokerages where it is not administered and executed correctly.” 

Brokers also expressed concerns that the increasing compliance demands were detracting from their ability to engage with clients meaningfully. Smaller brokerages end up diverting valuable resources from client service to meet regulatory standards, with some seeking partnerships with larger firms to alleviate this pressure. A common refrain in this survey emerged as: “Compliance documents are becoming longer and longer. So, while the intention of the regulation is TCF, in practice, your clients do not have the time to read the stack of documents you put in front of them.” Ironically, the industry consolidation in response to the compliance burden is among the outcomes regulators are seeking to address through regulation. 

3. Capacity constraints

Entering 2024, the South African insurance market remained hard, with limited capacity for certain risks and rising rates across various coverage lines. Capacity constraints were particularly challenging for high-risk or complex lines of business, where brokers found it increasingly difficult to secure coverage. One broker commented, “We are seeing massive capacity issues for certain types of risks; five years ago, we used to have a dozen insurers we could go to, nowadays my decline list for certain risks exceeds that number.” 

In extreme cases, risk capacity dries up entirely. As another broker noted, “We have seen certain risk categories where capacity has been withdrawn across the market, and this necessitates trying to develop a new market either in South Africa or offshore.” In response, brokers are exploring international markets and alternative coverage solutions, though these options often come with higher costs. The lack of local capacity means brokers must be creative in finding ways to protect their clients’ assets and manage risk effectively. 

4. The evolving nature of insurance coverage

Exclusions and limitations have become more common in the South African insurance market, with brokers noting an increase in policy wording restrictions, especially around systemic risks like grid failures and extreme weather events. “Most insurers have exactly the same wording from their reinsurers; it would have been beneficial to the market if insurers had been allowed to sit down and agree an exclusion wording, specifically around grid failures, to allow for a consistent understanding of it,” said a multinational broker. 

Brokers face the challenge of explaining these exclusions to clients and ensuring that clients fully understand the implications of new policy wordings. This task is particularly difficult when different insurers adopt varying interpretations of exclusions, complicating the broker’s ability to structure collective insurance deals. It seems local insurers are aware of the problem with the issue being raised through the Financial Sector Conduct Authority (FSCA) and on to the Competition Commission, as explained in a recent FAnews newsletter: ‘Brokers, insurers powerless to resolve contract uncertainty’. 

5. Climate change and systemic risk

Climate-related risks are reshaping the insurance landscape globally, and South African brokers are feeling the impact firsthand. As extreme weather events become more frequent and severe, brokers are grappling with insurers’ increasing reluctance to provide coverage in high-risk areas. This continues the established 21^st Century trend of emphasising insured-side risk mitigation over insurer-side risk transfer. 

According to one broker respondent, “The impact of climate change is being felt globally and the need for a revision of how the traditional fire and perils cover is assessed, evaluated and mitigated is real; this may require different solutions for the risk financing of potentially catastrophic losses.” Another observed that insurers were looking at their flood risk at street level, and limiting total exposure accordingly: “If they have too much exposure, either on their book or on their reinsurance treaty, the insurer will just say no.” 

Some local brokers are advocating for innovative solutions like parametric insurance or state-backed flood coverage to address climate-related risks, acknowledging that traditional insurance models may no longer be sufficient to cover large-scale disasters. However, regulatory approval is needed to enable a shift from the current indemnity insurance model to a parametric model which pays out based on predefined event parameters rather than the actual cost of losses. 

6. Growth and scale in a hard market

Smaller brokers are finding it increasingly difficult to grow and remain competitive. The complexity and cost of setting up the necessary technology, coupled with high compliance demands, are pushing many senior brokers toward consolidation as a strategic option. “In a hardening market, the smaller brokerages struggle to carry on and manage their businesses; smaller operators cannot navigate all the administrative and compliance elements and still grow and maintain their businesses,” a mid-sized brokerage opined. 

They noted that scale has become a valuable asset, allowing larger brokers to absorb operational complexities and invest in technology that helps them compete. For smaller players, consolidation or partnerships with larger firms may be necessary to survive. 

7. Cautious optimism

Despite the challenges, the brokers polled in this perception survey remained cautiously optimistic about the future. The 2024 national election, which proceeded smoothly and delivered a government of national unity (GNU), has bolstered confidence in political stability and raised hopes for a more favourable business environment in the near term. “If business starts investing, clients buy more assets, and insurance brokers get to assist them with facilitating insurance coverage,” explained one of the broker participants. 

This optimism highlights the resilience of South Africa’s non-life insurance brokers. Brokers across all segments of the market are adapting to the evolving landscape with innovative solutions and a commitment to supporting their clients’ needs. As brokers continue to navigate economic, regulatory and environmental challenges, they remain key players in helping clients manage risk and transfer risk in an unpredictable world. 

An adaptable, resilient broking community

The 2024 Stokes Media Broker Perception Survey reveals a non-life insurance broking industry that is both resilient and adaptable in the face of considerable challenges. From navigating regulatory burdens to addressing the complexities of a hard insurance market and climate-related risks, South Africa’s small, medium and large brokers are finding new ways to support their clients and stay competitive. 

The insights drawn from the survey underscore the crucial role that brokers play in the insurance ecosystem. Non-life brokers continue to add value to the broader economy by helping firms with the risk management solutions necessary to participate fully in the economy. 

Writer’s thoughts:

From advising clients on risk mitigation to navigating capacity constraints, intermediaries are vital in bridging the gap between insurers and insureds. Are your insurer partners doing enough to support you in today’s challenging risk environment? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.