Insurers cannot operate how they did previously

17 May 2023 Myra Knoesen

South Africa faced several challenges in 2022, according to Thabiso Rulashe, Strategic and Market Intelligence Manager at Santam, including climate-change-related weather disasters, loadshedding, and a rise in cyberattacks. Combined, these obstacles created a demanding insurance landscape.

Insurers cannot operate similarly to how they did the previous year, especially if they intend to mitigate existing risks and pre-empt new ones that might emerge, cautioned Rulashe. 

Trends shaping SA’s insurance industry

Here are some of the trends the industry faced in 2022 and can expect to continue seeing in 2023, according to Rulashe:

  • Increasing frequency and severity of climate-related disasters - The impact of climate change is undeniable, with extreme weather events, like the flooding that displaced hundreds of people in the town of Komani in South Africa’s Eastern province in February this year, increasing in strength and intensity. These extreme weather conditions have destroyed economies, livelihoods, and lives and are impacting insurance availability and pricing. More so, since the KwaZulu-Natal flood and storm damage claims reached over R4 billion in 2022 alone. For this reason, 2023 will see more insurers implementing location-based underwriting to identify the geographic, location-specified risk profiles for properties taking out insurance. Similarly, insurers dealing with declining municipal infrastructure risk can attempt to mitigate their exposures by collecting an array of related geolocation-based information about the areas they insure. Properties in low-risk locations will continue to be insurable without requiring much adjustment. However, those in higher-risk areas may become increasingly difficult to insure or lead to higher excesses and insurance premiums or additional expenses to meet special risk mitigation requirements imposed by insurers.
  • Insurers will need to review loadshedding policies - South Africa's intermittent power cuts continue to raise concerns about home safety and whether insurers will pay out loadshedding-related theft and damage claims. While some insurers don’t consider blackouts an insurable risk under most insurance contracts, more providers now consider the cause of the loss as a factor beyond the client’s control. More insurers will, therefore, consider claims related to power surge damage or theft during load shedding, such as theft resulting from malfunctioning security systems during a power cut.
  • Cybersecurity insurance will become crucial for risk mitigation - According to Mimecast’s State of Email Security 2022 survey, three out of four South African companies saw more email-borne threats that year, 94% were targets of phishing emails, 55% said attacks were increasingly sophisticated, and 60% were hurt by ransomware attacks, up from 47% in the previous year, resulting in downtimes that lasted an average of about 11 days. These growing attacks make cybercrime one of the most potentially fatal risks South African businesses face today. As a result, cybersecurity insurance will be crucial for everyone with an online presence this year, more so for businesses responsible for protecting customers' information. So, 2023 will see cyber insurance play an essential role in helping organisations recover from any business interruptions and financial loss incurred from these attacks.
  • ESG will give insurers a competitive edge - The climate-change-related issues the country faces mean more insurers will likely be judged by the steps they take to limit the impact of climate change, not just by the plans they present. More insurers will, therefore, need to adapt to emerging climate change-related risks and, in partnership with other role players, lead efforts to address the impact of climate change. 

The biggest differentiator

On another note, having heard global reinsurers’ view of the world for several years now, Kalim Rajab, Managing Director at New National Assurance Company, said it is clear that in the South African market, rates have been unsustainably thin for far too long, and that there has been a mismatch between these rates and covers provided to the market. 

“This historic “overhang” has meant that when the industry has finally been spurred into action, the collective medicine has been hard to swallow in one fell swoop for consumers. But for the sustainability of our industry, a more appropriate rate and cover setting is vital and this, I believe, is what should be on the industry’s radar for this year,” he said. 

For Rajab, the biggest differentiator in 2023 is the ability to deal with ambiguity, and the ability to communicate effectively. “There is so much uncertainty at present, which is going to be around for most of this year. Insurers are going to have to be adept at navigating these treacherous times, but the best ones will be those who communicate effectively with brokers and who work with them to navigate safely to calmer waters,” he said. 

From experience in 2022

Reflecting on today’s rampant global uncertainty, Rajab said futurist Nouriel Roubini identifies 10 so-called mega-threats, spanning various economic, financial, political, technological and environmental disasters. “Sound policies might partially or fully avert one or more of them, but collectively calamity seems near certain. Expect many dark days, my friend,” Roubini concluded recently. 

“This, to me, shows that in South Africa, we are not unique in the stressful times we face,” said Rajab. 

“Our society – like much of the world, although with our own unique challenges added onto this – is going through intense upheaval, and no one knows how the next 12 months are going to play out, let alone the next two-to-three-year period. The one thing Covid taught us, is that in the face of rapid change, we are extraordinarily adaptable, and can do so quickly if faced with an urgent crisis. From the electricity grid crisis to a potential water management crisis, to possible further extraneous or “black swan” events, the insurance industry will have to face new challenges. How we respond to these challenges will determine whether the industry is able to face out this storm,” concluded Rajab. 

Rulashe agreed. “Despite facing a turbulent 2022, South Africa's insurance industry is incredibly resilient. Over the years, it has demonstrated remarkable agility and adaptability in overcoming countless obstacles, especially following the impact of the pandemic, and this year will be no different.” 

Writer’s Thoughts
South Africa faced several challenges in 2022, and some of the challenges still linger today. While the outlook is positive, markets remain volatile, and risks continue to grow. Can the industry continue to operate the way it did previously? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts

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