How many of you have reacted with a bit of shock at increases in your short-term insurance premiums over the last few years? If your experience was anything like mine, you had two years of double-digit or very high single-digit increases. We have several factors that came together over the last few years that gave rise to these inflation-beating increases:
COVID-19 hit global insurers (including SA) hard with business interruption claims. These “one in a hundred” year events are always said to be priced in, but when they hit, it takes a few years for insurers to rebuild reserves – normally through higher premiums.
The 2021 riots in KZN, although largely covered by SASRIA at a cost of R33bn, changed the way global reinsurers as well as local insurers are looking at risk in South Africa. What under normal circumstances isn’t a front of mind risk transpired and had insurers adjust pricing to compensate for this risk.
The 2022 floods in KZN were a $1.8bn insured loss event (around R32bn at the time) with only R1.5bn of those losses retained by South African insurers. Global reinsurers took the brunt of the loss at around R30bn. The response by the reinsurers was two-fold, they materially increased premiums and they also increased what they call “attachment points”, which means that in future, local insurers will have to take a larger portion of the first losses. These costs and increased risks unfortunately have to be passed on to consumers. Fixed property insurance rates saw massive increases on the back of these two events in KZN.
Increased loadshedding claims or “power surge claims” and increased theft of high value keyless entry vehicles. These issues were largely resolved by increasing excesses in the first instance and taking risk-mitigating actions in the latter. These actions included extra trackers, working with manufacturers and in some cases very large premium increases specific to these vehicles.
Looking at current trends, it seems that we might be in for another year of higher increases, after which premium inflation could slow. Under current circumstances it should be enough to restore insurer profitability to historic levels, but the increasing trend of natural disasters (locally and globally) is of concern. Climate change is front of mind for global reinsurers and these trends are being closely watched. Recent flooding in the Western Cape as well as in Margate risks pushing reinsurance rates even higher for South African insurers, with the lack of infrastructure investment and maintenance in South Africa exacerbating a global problem.