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Climate change, infrastructure concerns and socio-economic challenges are creating a difficult environment for South African insurers, which is expected to put further strain on already cash-strapped South Africans.
South Africa is no longer insulated against large catastrophic events like those in the Asia-Pacific, Europe, and the United States of America.
The July 2021 unrest caused an estimated R50 billion in economic losses, whilst the 2022 KwaZulu-Natal flood losses resulted in an estimated R54 billion – half that total was carried by the insurance industry.
“The growing number of large catastrophe reinsurance claims locally, coupled with rising global losses, has caused reinsurance premiums to increase significantly. This volatility in the reinsurance market will likely become the new normal,” Tavaziva Madzinga, Santam Group CEO, said.
“Entering 2023, Santam added global geopolitical developments to its monitoring agenda, with a focus on determining how the BRICS expansion, China-US trade relations, and the Russia-Ukraine War will affect the global reinsurance market.”
“More recently, the resurgence of Middle East conflict has also become a focus. There are concerns that global supply chains will be further impacted by these tensions, contributing to significant claims inflation, with the resultant cost of repairs further compromising the affordability of insurance in the years to come.”
Although there is a growing risk of catastrophic claims from climate change – additional water losses that are not linked to a catastrophic event – can also impact or threaten the sustainability of the insurance industry.
According to the 2022/2023 Santam Insurance Barometer Report, the insurer saw an increase in flood-related claims across all lines of business during 2022, and this continued into 2023 following flooding along the Orange and Vaal Rivers in early 2023 and the Western Cape in June.
“Each of these events revealed an additional layer of risk in that South Africa’s infrastructure degradation increases the extent and severity of flood-related losses. This is a major challenge that will have severe consequences for not only the insurance industry, but the businesses and communities that rely on them,” Madzinga said.
“Worsening road conditions, fire-fighting capabilities, sewerage systems, and flood water drainage – to name a few – are becoming increasingly vulnerable to disasters. Damages following disasters are extensive, the cost of repairs exorbitant and downtime is lengthy.”
“Most importantly, infrastructure that is not structurally sound also has an impact on the number of lives that are lost in a disaster. To ensure sustained insurability, significant focus and financial resources from the government are required to turn things around as well as a collaborative effort by the private and public sector.”
Load shedding also has huge risks for consumers and businesses, with Santam seeing a roughly 67% increase in claims in 2022 for damage to sensitive electronic items due to power surges – reaching R609 million.
There has also been a steady increase in crime across the country, with the insurer noting that there has been a strong increase in high-value vehicle hijacking and thefts.
Industry stakeholders also said that cybercrime could be the new big loss maker for the industry, with a 12% increase in commercial and corporate respondents stating that it was the biggest risk from the 2021/22 report.
Read: Nice surprise for South Africa – but the problems can’t be ignored
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