It has often been said that change is the only constant, and nothing has made that more apparent than Covid-19.
By Edward Gibbens, executive head of commercial and personal lines at Santam
Between the pandemic and the loss of billions caused by the 2021 political unrest, it has become clear that, from a risk perspective, failing to prepare is preparing to fail. The risk landscape’s rate of change has now accelerated dramatically, making proactive mitigation and management more important than ever before.
Poor infrastructure, cyber-crime and large-scale workplace changes that have come about because of Covid-19 have had a profound effect on insurance for businesses and corporations. Going forward business owners are going to have to pay special attention to these factors.
To help plan for the coming challenges, Santam, as South Africa’s largest short-term insurer, surveyed 400 commercial and corporate entities, 401 consumers, and 150 intermediaries across the country to understand what keeps them up at night.
Our goal was to discover how the risk landscape has changed, measure the general level of awareness in the market about current and emerging risks, and explore what stakeholders can do to remain relevant in the insurance value chain.
The findings were compiled into our authoritative 2021 Santam Barometer Report, which details trends and useful insights in the South African short-term insurance industry. These are some of the key findings from the Barometer.
The Accelerating Rate of Change
Since the pandemic began, 97% of large corporates have had staff work from home during lockdown and the average vehicle owner at the height of the pandemic drove 90km per month which was 80% lower than the year before where that number sat at 162km.
This has led to the increased adoption of innovative insurance products like SmartPark, a distance-based vehicle insurance benefit that uses AI and machine learning to determine a clients’ insurance premium based on how much they drive.
These significant changes in our behaviour have had a profound impact on the insurance industry and resulted in a general reduction in claims volumes across both personal and commercial lines of insurance.
Systemic Risks
Systemic risks are vulnerabilities in a system that can lead to widespread losses to individuals, businesses, industries, and even countries. They typically include pandemics, political unrest, and climate change. Over the last 12 months, South Africa has been buffeted by all three of those events.
As a result of the July civil unrest, for example, national treasury immediately disbursed R3,9-billion to the South African Special Risk Insurance Association (SASRIA). This, coupled with the risks associated with climate change and the pandemic, has resulted in higher premiums in insurance and reinsurance contracts locally and globally.
The knock-on effect of that has been a reduced capacity in certain lines of insurance for insurers and reinsurers alike.
Infrastructure challenges
A thriving insurance sector is an integral part of any healthy economy. It not only makes people and businesses more resilient but also serves as a prerequisite for borrowing and gaining access to capital. Both things are necessary to maintain a robust and dynamic economy.
One of the less appreciated risks is the impact of deteriorating power, water, port, rail, and road infrastructure. It stifles economic growth and reduces our ability to put a dent in our unemployment numbers. Crucially, poor infrastructure also makes insurance more expensive.
A lack of fire hydrants or inadequate stormwater drainage, for example, may result in greater fire or flooding damage than would otherwise have been the case. That filters through into a higher cost of insurance, ultimately reducing resilience and access to capital. This chain of events consequently makes it more difficult to do business and create jobs.
Cybercrime
The rapid adoption of technology has allowed many businesses to operate more efficiently. Staff are now able to work remotely, which has equipped organisations with the ability to gather talent from a variety of locales without needing to physically be there. Unfortunately, it has also increased the potential risk of cybercrime.
Last year, South Africa’s ports were brought to a virtual standstill when Transnet fell victim to a major cyber-attack. Some trucks were left stranded for 14 hours while the Durban port was left operating at 10% capacity. Globally, maritime hacks have skyrocketed by 400% as the industry digitises.
The struggles the industry is having with cyber security serve as a warning for what could be in store for organisations that do not take appropriate steps to safeguard themselves.
Roughly 45% of the commercial intermediaries surveyed identified cybercrime as a key emerging risk. Comparatively only 36% of commercial and corporate entities agreed with this assessment – this number remains unchanged from the 2019 Insurance Barometer survey despite a significantly larger sample size. This goes some way towards explaining why we have not seen a proportionate increase in the demand for cyber insurance cover, even though the growth in both working from home and digital communication have materially increased cybercrime risk.
The reality is that companies must prioritise risk management to deal with future risks.
The industry must shift the collective mindset from one of risk transfer to one of holistic risk management. This is still true today – possibly even more so in a post-pandemic world. We want to see the industry move from repairing and reimbursing clients after a loss to more investment in risk preparedness, so that insurers can add value every step of the way.