SAIA platform to improve the industry in the long run

As the financial services industry grows in age, new generations of policyholders are exposed to more risks than previous generations. With the evolution of the technological age, which has seen the realisation of Marshall McLuhan’s vision of the Global Village, some argue that the current generation of policyholders is exposed to the greatest amount of risks in the industry’s history.

However, the nature of the financial services industry is that there is a steady inflow of new policyholders that remain within the industry for an indefinite amount of time.

Running the risk of exposing policyholders

While this poses a significant challenge to policyholders, where some are more adept to cope with the newfound risks than others, product providers run the risk of exposing policyholders to unnecessary risks by not offering policies which do not protect against the greatest amount of risks that are prevalent in the industry.

In most cases, this is because product providers are not always up to date with the prevalent risks. In order to resolve this, the South African Insurance Association (SAIA) teamed up with the Financial Intermediaries Association (FIA) to set up a Strategic Risk Forum which hopes to highlight these risks to companies.

The Strategic Risk Forum met twice in 2013. The Think-Tank on the Built Environment was held in collaboration with the Association for Savings and Investments South Africa (ASISA) and the Banking Association South Africa. The participants considered two key issues:

- What aspects of the built environment present particularly challenging risks and might benefit from innovative collaboration involving the participating industries and government? What could some of those innovative collaborations look like? And,

- What practical early steps should be taken, by whom and when?

SAIA reports that at the end of the meeting, participants felt that an excellent first step towards creating collaboration had been taken. This, together with other needs, included in the SAIA Image and Reputation Strategy which culminated in a CEO Forum being established with SAIA, the FIA, ASISA and the Banking Association of South Africa as members. The purpose of this forum was to identify and address areas of collaboration and common concern.

While these risks were not outlined, and no mitigation strategies were provided, some of the most pertinent risks remain cyber liability and the protection of road users against uninsured vehicles. Other areas of concern would be the effects that urbanisation would have on non-urban communities when the main income earner possibly leaves behind an extended family which is dependent on him/her for support.

Climate risks are increasing in prevalence

Since the issue of global warming and climate change was highlighted by various public awareness groups in 2000, there has been increasing evidence of its effects and the impact that it can have on the financial services industry.

On 10 June 2013, a Strategic Risk Forum meeting on Climate Change and its Relevance to the South African Market took place, with the purpose to identify strategic interventions that could help the insurance industry build business resilience in the face of oncoming climate impacts.

Issues such as considering possible mitigations of risks, rather than merely transferring such risks, were considered. Other issues that were dealt with included the impact of climate change on the industry, encouraging customers to manage risks through insurance products and services and how to gear the industry towards managing climate risks were discussed.

One of the main conclusions that was established during the meeting was that climate change is likely to increase the threat for change in both coastal as well as inland areas. Exposure is also increasing through the concentration of people in metropolitan areas where there will be a high concentration of insurable assets in certain areas as opposed to being spread equally across the country. Extreme weather events will also affect supply chains and energy supplies and agricultural sustainability, which would ultimately affect gross domestic product growth, which would jeopardise the country’s economic growth. Other factors which were highlighted included increased health risks, the importance of renewable energy, and the need to move towards a low carbon economy.

Key project implementation

In an effort to reduce the risks carried by the industry, SAIA is in the process of implementing a number of key projects which would hopefully improve the industry.

One of these projects is the Green Geyser Replacement Project. The project is considered important as it would reduce energy consumptions at homes which would reduce the electricity demands on the country’s already fragile electricity grid.

The implementation of the project is currently on hold because of a funding issue. However, the SAIA Board decided during November 2013 that the project was important, as it could lead to a reduction in South Africa’s energy demand. It is therefore urged that the possibility of proceeding to pilot the project without funding be considered by the project’s steering committee. Meetings early in 2014 will be held to consider a way forward. Discussions about funding for this important project are ongoing.

Another key project is protection offered to the agricultural sector, which plays a key role in the country’s economy.

The recent SAIA Bulletin points out that the Department of Agriculture, Forestry and Fisheries (DAFF), along with National Treasury (NT), has played a significant role in the exploration of a state supported insurance scheme.

Having consistently allowed the insurance industry to BREAK provide feedback, the Department contracted consultant, Andisa Agri, submitted a final proposal for such a scheme during December last year. This has not yet been disseminated by DAFF to SAIA. The Department is currently reviewing a multi-peril crop insurance scheme. We expect clarity on the timeframes for its implementation once Government has approved the scheme.

Combatting a growing problem

It makes sense that the only way to overcome a challenge is to acknowledge its existence and to establish its root. Because of urbanisation, there will be more built environment activity surrounding metropolitan areas. And because of Johannesburg’s role as the country’s economic hub, there will be more inherent built environment risks in Johannesburg than in Durban and Cape Town.

There are also associated risks for smaller metropolitan areas. Because of urbanisation, there is a higher concentration of insurable assets on certain areas. Therefore, the majority of claims are centred on certain areas and are not spread across the country.

This also has an effect in terms of climate change. Insurable assets which were possibly in areas where climate change would have a small effect have now been moved to areas where climate change will have a significant effect.

Because of this, a programme to identify the inherent risks within the industry can only benefit policyholders, product providers and intermediaries.

Editor's Thoughts:
These challenges do pose more of a risk to product providers than policyholders. Consider the effects on the industry if two thirds of the country’s insured vehicles were affected by the infamous Gauteng hail storm of 2012? Risks need to be identified in order for companies to develop relevant mitigation strategies. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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