The growing number of large catastrophe reinsurance claims locally and rising global losses have caused reinsurance premiums to increase significantly, with a knock-on effect on South African client premiums, according to the 2022/2023 Santam Insurance Barometer Report.
According to the report, it has become clear that South African insurers are no longer insulated from the global natural catastrophe experience of the Asia-Pacific, Europe and the US.
The third edition of the biennial report, which tracks emerging risk trends in the country, was conducted against the backdrop of the rising frequency and severity of natural catastrophe losses, unprecedented levels of inflation and the soaring cost of repairs due to geopolitical issues impacting supply chains, as well as a fluctuating currency.
More than 900 consumers, businesses and brokers from across the country were surveyed, and the findings were combined with Santam’s own claims data to create an insightful report.
Santam Group chief executive officer Tavaziva Madzinga said: "The last three years illustrate that no country or continent can consider itself insulated against large catastrophe events.
"Globally, the 2020 Covid-19 pandemic rewrote the record books on insurer and reinsurer exposures to systemic risks. Locally, rioting and looting caused an estimated R50 billion in economic losses in July 2021, with climate change-related extreme weather events dominating the insurance industry’s claim statistics in 2022 and 2023".
He said the economic cost of the April 2022 KwaZulu-Natal floods was estimated at R54 billion, with half that total carried by the insurance industry.
"The high-risk environment we find ourselves in has presented many challenges for insurers who must now prioritise ensuring they can carry these risks sustainably so that more people can prosper. It is how we navigate these risks that will allow us to turn them into opportunities for the evolution and growth of our industry," Madzinga said.
Santam chief underwriting officer: broker solutions Philippa Wild said reinsurers are getting tough on systemic risk exposures to protect their balance sheets and ensure the long-term sustainability of the global insurance market.
"The tools they use to do so include increased reinsurance premiums, implementing new risk mitigation regimes, and introducing cover exclusions.
"In the South African context, reinsurers’ decisions to exclude cover for asset damage or loss of profit following electricity grid failure should, therefore, come as no surprise," she said.
The report found that the tough economic climate and load shedding are the biggest challenges currently impacting South African households and businesses.
"Santam saw an exponential jump in both volume and value of power surge-related claims across Personal and Commercial lines of business for two consecutive years, in 2021 and 2022.
"The combined claims volume was up by 39% in 2022 (37% in 2021), and the value of claims paid across both lines soared to 48% in 2022 (after an astonishing 53% in 2021)," it said.
The report said the significant spike in these claims can be attributed to the on-and-off “switching” that goes hand-in-hand with Eskom’s load shedding programme; in turn, a response to inadequate energy infrastructure.
Electricity aside, the South African economy is beset by a range of structural challenges that are amplifying the severity of loss events and ultimately pushing the cost of insurance into the realms of unaffordability, the report revealed.
"Some examples include poorly maintained road, rail, and port infrastructure and the well-reported shortcomings in municipalities’ water and sanitation infrastructure, to name a few.
"Commercial respondents raised failing infrastructure as an area of major concern in both the 2020-2021 and 2022-2023 surveys, and insurers are feeling the pinch from infrastructure-related losses despite efforts to collaborate with government and insured clients to mitigate associated risks," it said.
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