Innovation critical in tough conditions

• Insurers need to be flexible in their offerings — or risk losing business to more agile companies

The insurance industry has had a tough few years: the life insurance sector was hit with higher than normal death claims as a result of the Covid-19 pandemic while the short-term industry has had to endure a host of shocks including high loss of income claims and business interruption claims as well as covering claims for the July 2021 riots and civil unrest and the 2022 KwaZulu-Natal floods which caused extensive damage in the province.

The short-term industry is bracing for a continued tough operating environment due to a number of factors, says Ayanda Seboni, group executive for marketing and stakeholder relations at PPS. These include the need for constant customer service enhancements, rising inflation and climate change, as well as cyberattacks.

“Individuals, as well as small and medium enterprises, are likely to bear the biggest brunt of these adverse developments,” she says.

Technological advancements, says Seboni, are breaking down barriers to entry into the short-term insurance industry, leading to a scramble for new clients. At the same time, clients are demanding an efficient digital service they can access at their convenience.

“Insurers need to be flexible in their offerings — or risk losing business to more agile insurers. It’s also critically important to keep innovating as clients’ needs evolve, in the process developing user-friendly, efficient and customer-centric offerings that enhance time-intensive lives.”

She adds that clients now expect insurers to improve the speed of the settlement and the transparency of the claims process as well as communication regarding the status of the claims.

Another trend is inflationary pressure. The International Monetary Fund predicts that SA’s current inflation pressure will extend to 2024, which will impact the replacement of insured items such as vehicle parts and construction material for buildings.

“Inflation adds pressure to the margins of most insurers,” says Seboni, adding that while the industry has put measures in place to cope with rising inflation, the consequences may be an increase in premiums.

Climate change is one of the top four risks systemic in nature that have been identified in the World Economic Forum’s Global Risks Report.

“The recent heavy rains across the country and the flooding in KwaZulu-Natal are further confirmation climate change plays an increasingly prominent role in weatherrelated damages for the insurance industry.”

This is particularly true for property owners. She says property buyers and insurers need to understand the varying exposure that different risks may have on property. For example, it will help when the weather history for a specific area is considered along with the classification of property size and age. Other elements to be considered include the distance from rivers, dams, the ocean, forests and farms, as well as the likelihood of breakaway wildfires and seismic activity.

“It goes without saying that everyone should actively seek to mitigate the risk global warming poses to the quantum and severity of short-term insurance claims. A failure to do our part will cause recurring increases in insurance premiums,” says Seboni.

When it comes to insurance, small and medium-sized enterprises (SMEs) are the most at risk both because they often don’t prioritise insurance cover in an effort to keep operating costs as low as possible or because they are not aware of the different business insurance products available in the market, she says.

“SMEs, which are generally accepted as being critical to economic growth and job creation, require appropriate business insurance due to rising risks such as liability claims, cyberattacks and storm damage to property, which may lead to loss of income.

“Cyberattacks, for example, are not only aimed at large businesses. Without the appropriate business insurance

— including cyber insurance — business owners will have to pay out of pocket for costly damages and legal claims against their company.”