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A year of renewed growth, collaboration, and continued resilience

16 January 2024 Myra Knoesen

The industry has been resilient over the past few years, despite the challenges it has faced.

Ricardo Coetzee, Head of Auto & General Insurance, Soul Abraham, Chief Executive: Retail at Old Mutual Insure and Thabiso Rulashe: Head of Strategy and Investor Relations at Santam chatted to FAnews about what transpired for the industry in 2023, both positive and negative, and the opportunities and challenges that lay ahead for 2024. 

A look back at 2023

Looking back on 2023, Coetzee believes the challenges were “intensifying risks (insurers must have the agility and insights to cover a greater array of intensifying risks) and workforce enablement in a hybrid environment (although challenging at first, from an Auto & General perspective, we have been very successful in maintaining our customer and broker service levels).” 

Abraham on the other hand believes that harsh economic conditions, climate catastrophes and fraud were the top three challenges for 2023.

“There was a lot of pressure on our industry, especially in the context of the massive spike in claims costs due to inflation. Motor claims inflation topped out at around 15% and non-motor around 12% due to Covid-related supply chain issues. So, insurers also had to increase rates significantly, adding to the consumer’s cost-of-living burden. We just haven't been able to offer cheap insurance when the cost of fulfilling claims has increased so considerably. Our customers have also faced challenging economic conditions, with increasing interest rates adding to their rising cost of living. For the insurance industry, this means that there has been less disposable income for what is typically viewed as a grudge purchase. Industry stats suggest that the insured population of South Africa has decreased over the last 12 months as a result of the above factors,” said Abraham. 

“In 2023, we had smaller but more frequent climate catastrophes, which ran into hundreds of millions of Rands and happened across the country. These events are due to climate change, so that was a challenge due to its unpredictability and volatility. The increase in climate catastrophes also resulted in significant increases in reinsurance costs, putting pressure on short-term insurers’ margins and expenses. Amid the harsh economic conditions and climate catastrophes, we saw a significant increase in fraud claims too, and we had to invest more energy and resources into fighting off fraudulent insurance claims to protect our honest customers. The explosion of Artificial Intelligence (AI) tools, including ChatGPT, facilitated another step-change in the sophistication of fraud, allowing fraudsters to make claims on behalf of clients using deep fake video, voice spoofing, document forgery, advanced social engineering, email phishing and synthetic identify fraud. Against this background, it becomes increasingly difficult to identify fraudulent claims. If it continues unchecked, insurers will be forced to increase pricing by raising premiums or reducing cover, worsening the protection gap for the policyholder,” added Abraham. 

The opportunities that arose

According to Abraham, tough economic conditions often offer opportunities to acquire promising smaller businesses that require scale and a large insurer to support their ambitions. “For brokers, there are also opportunities - the challenges in the last three years have highlighted the crucial role brokers and advisers play in the short-term insurance industry for consumers, businesses, and agricultural producers. Their expertise in enabling clients to manage and cover their varying risk exposures during uncertain times has become clearly apparent. For the industry, the climate catastrophes highlight how crucial it is to protect against these devastating weather events. Thus, customers become more aware of the importance of insurance in their lives.” 

Coetzee said, “For the industry, the opportunities that presented themselves include the effort to really step up and create trust with customers when it comes to the payment of claims and to utilise digital solutions in a clever way, focussing these solutions to enable better customer and broker servicing and ultimately enable growth.” 

Going into 2024

Rulashe said, “We started 2023 talking about poly-crisis i.e. the simultaneous occurrence of several catastrophic events. We think this will persist for a while, making the operating environment a tough place to be. The year 2024 will see multiple geopolitical, macroeconomic and climate-related trends continue to create widespread uncertainty for industry. Trade tensions, supply chain disruptions, the Europe/Middle East War, and regulatory and sustainability/climate-related pressure points will keep the world and industry occupied.” 

“For insurers, mostly South African insurers, they will look to return to profitability, whilst dealing with the constrained economy. The obstacles to growth are persistent energy shortages, infrastructure decay, high crime and poor freight and logistics challenges. The onset of the El Nino weather pattern is creating additional uncertainty in the global economy and may have implications for agricultural production and shifting weather patterns. The El Nino phenomenon will not affect the world uniformly, creating risks for the global economy in both directions. For example, in South Africa, it may lead to drought, altering agricultural yields, increasing food prices and private spending. This weather phenomenon may minimise the negative impact of the floods experienced this year; however, it may impact our agriculture and property business through increased drought and fire-related claims,” continued Rulashe. 

Coetzee added, “The lessons we can take with us into 2024 are to use the knowledge and experience gained in these post-pandemic years, characterised by environmental, social, and technological disruption, to work closely with policyholders, communities, and our broker partners to actively introduce more forward-thinking client-centric approaches and to focus specifically on the fast and simple pay-out of 100% of valid claims.” 

Abraham said that the industry and brokers have come through strongly after three tough years, and this resilience will be a valuable resource to draw on in the years ahead, given the uncertainty that still prevails. “Difficult conditions have also meant that brokers and insurers have bolstered their ability to be agile and innovative, responding proactively to changing market conditions and making the best use of technology to harness opportunities and withstand industry challenges. We’ve also become acutely aware of how powerful and integral data is in effectively communicating with customers and delivering industry-leading insurance propositions.” 

Resilience in the years ahead

To thrive, despite tough economic challenges, Rulashe said insurers should improve risk management and underwriting practices, invest in data capabilities, enhance collaboration with stakeholders, invest in new business models of the future, embrace AI and scan for transformational Mergers and Acquisitions (M&As). 

In closing, Abraham said, “I believe the industry is coming to the end of a difficult underwriting cycle, during which premiums have been increasing, and product benefits have tightened. In the first half of 2024, we should see this harsh business climate begin to ease and easier trading conditions take hold. We are thankful for the support of brokers and advisers during these challenging market conditions and look forward to an ongoing partnership in which we grow and thrive together during the good and the bad times.” 

In his concluding remarks, Coetzee said, “It’s about customer-centricity, service reliability, and claims certainty.” 

Writer’s thoughts

As we stand on the threshold of 2024, the industry faces a landscape marked by geopolitical uncertainties, macroeconomic trends, and climate-related pressures. The industry's determination to remain profitable, along with a focus on putting clients first and using technology, shows a forward-thinking and proactive approach. Do you believe 2024 will be a year of renewed growth, collaboration, and continued resilience? Please comment below, interact with us on Twitter at @fanews_online or email me - myra@fanews.co.za

 

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