The global insurance landscape is facing unprecedented challenges due to a variety of factors, including ongoing conflicts such as the war in Ukraine, tensions in the Middle East, and the increasing frequency of natural disasters, all of which are creating significant disruption to societies and economies worldwide.
The South African insurance industry, in particular, is grappling with these compounding challenges, pushing the sector to find innovative ways to adapt.
According to Mark Sanders, Chief Operating Officer at GIB, the traditional insurance model, which relies on predictability and historical data, has been disrupted.
“The increasing unpredictability of global events has forced insurers to rethink their approach to underwriting,” he explained. “The sector needs to adopt new strategies to stay sustainable and prepared for the unknown.”
In response to the growing unpredictability, insurers are adjusting their risk assessment strategies.
This shift is evident in the rising premiums, stricter coverage terms, and enhanced geographic risk modelling required to effectively manage exposure.
For example, the increasing severity of natural disasters has forced reinsurers to change their approach.
South Africa, once considered predominantly at risk for fires, is now facing a broader range of disasters, including floods, which have caused significant financial damage, such as the R25 billion loss in KwaZulu-Natal. This evolving risk profile requires a more dynamic and responsive approach to underwriting.
Further complicating matters, political instability in neighboring Mozambique has resulted in stricter insurance conditions, particularly in marine, terrorism, and political violence coverage.
Some insurers have even excluded coverage to and from Mozambique due to the high certainty of loss in the region.
In addition to these external pressures, environmental, social, and governance (ESG) factors are increasingly central to the insurance sector.
Insurers are now requiring clients to implement active ESG strategies before offering coverage.
One notable example is the surge in solar energy installations, which, while reducing energy dependency, introduces new risks such as fire hazards and equipment failures. To address these risks, insurers are enforcing stricter underwriting standards.
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Beyond the renewable energy sector, insurers are also facing challenges in industries like agriculture.
South African farmers, particularly in the Western Cape, are experiencing more severe droughts, prompting insurers to develop innovative solutions, including weather-based insurance products, sometimes utilizing satellite data to trigger payouts.
Despite these challenges, there is a positive shift in the industry as businesses and consumers become more engaged with their insurance policies.
According to Sanders, more clients are actively managing their risks and seeking to understand their policies in greater detail before a loss occurs. This proactive approach helps businesses better mitigate risks and identify additional coverage they may need.
As the South African insurance industry continues to navigate an increasingly complex environment, it must remain adaptable to the challenges posed by climate change, geopolitical tensions, and economic volatility.
The industry’s future success will depend on collaboration between insurers, brokers, and clients to ensure that risks are effectively managed and that the sector remains resilient in the face of ongoing uncertainties.
