SA insurance market changes to watch out for in 2023

South Africa’s ongoing energy crisis, natural catastrophes and rising geopolitical tensions have negatively impacted the insurance market, according to AON’s 2023 Insurance State of the Market report.

AON SA chief broking officer Alicia Goosen said the impact is reflected in the January 2023 reinsurance renewals, which marked a turning point for the market “signalling a new and tougher reality for insurance buyers”.

“It was the most challenging January renewal in a generation, as the insurance market underwent fundamental shifts in pricing and risk appetite, especially for property catastrophe risk,” said Goosen.

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Troublesome trio

The insurance expert warned that volatile economic and geopolitical factors would affect business risk profiles, requiring improved risk strategy and transfer objectives.

AON’s report indicated that KwaZulu-Natal’s deadly floods resulted in 455 fatalities and multi-billion dollar economic losses.

Climate change

“The floods became the costliest event for South Africa’s insurance industry on record,” – report.

The report also indicated that global natural disasters in 2022 resulted in nearly $313 billion’s (about R5 trillion) worth of economic losses, with half of the losses occurring in the US due to the devastating impact of Hurricane Ian and numerous storms.

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Load shedding

The insurance industry has not been immune to the negative effects of load shedding, significantly changing how the industry manages underwriting risks and exposures, according to the report.

As of 2022, insurance and reinsurers have imposed restrictions and limitations to mitigate the impact of load shedding.

• Property damage losses due to interruption of power supply including load shedding.
• Business interruption losses resulting from power cuts.
• Power surge cover and potential risk of a national grid failure.

Russia-Ukraine war

Goosen said the insurance market has also been affected by rising geo-political tensions including the Russia-Ukraine war and South Africa’s looming 2024 election.

According to the report, impacts of the war are likely to continue for the foreseeable future as experts continuously try to anticipate the changing geopolitical landscape and social unrest.

“The bottom line is that in a world of growing volatility, these interdependent economic and geopolitical factors will without doubt have a significant impact on business risk profiles,” said Goosen.

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Key SA insurance market changes

AON’s report indicates notable changes in the South African insurance market, which are evidently reflected by key trends.

• Reduced capacity on risks – making it challenging to secure coverage with carriers.
• Natural catastrophe cover restrictions are increasing worldwide – including in SA, following the KZN floods, affecting reinsurance treaty renewals.
• Increased treaty renewal rates – filtering through to insurers.
• Inflation – is also impacting the underwriting and claims process.
• Rate increases – with an average increase of 15% for good clean risks as of April 2023.
• Global supply chain challenges – locally (Transnet) and globally (shipping lines) affecting all industries.

Motor vehicle insurance

The motor vehicle industry has also experienced significant changes.

According to the report, the increase in interest and exchange rates has made repair costs more expensive, while international shortages in semi-conductor supplies and spares have affected the turnaround period for repairs and replacements.

Meanwhile, the report also indicated there’s been an increase in the number of uninsured vehicles on SA roads, which has diminished the likelihood of recovering damages from third parties.

SA’s deteriorating road infrastructure has also affected the insurance industry , driving an increase in claims, according to the report.

Vehicle owners with key-less entry have also been targeted by criminals.

AON’s report also indicated there’s been a reduction in the number of car rental vehicles post-Covid, negatively impacting replacement vehicle availability and timeframe.

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Advice to insurance buyers

Goosen said insurance buyers must be aware of changes to their risk profiles posed by economic and geopolitical factors.

Additionally, the insurance expert warned of possibly evolved risk strategy and transfer objectives due to volatile market conditions.

Goosen shared the following tips for insurance clients:

• Address your evolving risk profile and objectives – challenge and re-set your risk tolerance, appetite and strategy, aligning your risk management programmes accordingly.
• Increase underwriter confidence in your risk – engage your underwriter throughout the year to bring insurers on your journey, and communicate transparently.
• Leverage a robust approach to managing your property risk – develop a property risk improvement strategy and be prepared to make required investments.
• Conduct due diligence on your counterparties – be cautious, sceptical and judicious. “Remember the adage; ‘if it sounds too good to be true, it may very well be,” said Goosen. “Have a plan B,” she concluded.

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