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New research | Santam 2023 Insurance Barometer reveals SA’s biggest risks

New research | Santam 2023 Insurance Barometer reveals SA’s biggest risks
20-10-23 / Tau kaVodloza

Cape Town - Santam Insurance, South Africa's largest short-term insurer, this week released the 2022/2023 Santam Insurance Barometer Report, which revealed that the tough economic climate and loadshedding are the biggest challenges currently impacting South African households and businesses.

The study, 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.

The third edition of the biennial report offers deep insight into the evolving risk trends impacting South Africa, and surveyed more than 900 consumers, businesses and brokers from across the country. The findings were combined with Santam's own claims data to create an insightful report, that examines how the local industry can adapt to changing market realities and customer needs. 

According to Andrew Coutts, CEO of Santam Broker Solutions, the local short-term insurance industry is currently facing a momentous shift in the risk landscape.

"Climate change, infrastructure concerns and socio-economic challenges have created a tough environment for local insurers who bear the responsibility of ensuring their balance sheets can sustainably withstand the cost of the risks dominating the environment they operate in; while also protecting the financial well-being of clients, and the safety of communities," he said. 

The impact of South Africa's deteriorating infrastructure, particularly that of Eskom, and the socio-economic challenges due to the constrained economy and high inflationary environment were visible in Santam's claims statistics. Economic challenges also manifested in higher volumes of crime-related claims.

"Two standout claims trends developed in both the personal and commercial lines categories over the past two years that required corrective actions. The most notable being an exponential escalation of power surge claims related to loadshedding, followed by high-value vehicle hijacking and theft," said Coutts.

He added that Santam had experienced 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). 

On the motor side, the high-value vehicle hijacking and theft claims increased by 128% year-on-year in 2022, breaking a long-term declining trend. Fortunately, the risk mitigation efforts in the form of tracking devices proved effective and resulted in full-loss incidents declining by 80% in the first half of 2023.

The 2022/2023 survey specifically measured the risk trends impacting South Africa and key findings of the study are:

How insurance consumers experience the risk landscape in SA

About 12% of consumer survey respondents suffered financial loss due to extreme weather over the past two years. The survey found that 75% of consumer respondents were concerned about the threat posed by extreme weather events and have taken risk mitigation actions, with 23% improving home maintenance (clearing gutters), 10% removing large trees and 7% building a brick wall to protect their property from flooding. This concern is validated by Santam's statistics, which have shown a consistent uptick in weather-related claims.

The top 10 risks identified by consumers

  • Economic challenges: 58%
  • Loadshedding: 57% (2021: 9%)
  • Accidental loss/damage to home, vehicle, property: 39%
  • Societal issues: 34%
  • Unemployment: 29% (2021: 23%)
  • Political risk, e.g. Degradation of infrastructure (potholes, etc.): 19%
  • Theft/cloning bank cards: 14% (2021: 10%)
  • Climate change: 14% (2021: 4%)
  • Fire: 13% (2021: 9%)
  • Cybercrime: 12% (2021: 7%)

The impact of the increased cost of living on consumers

  • 88% of consumers adjusted their spending habits to survive the rising cost of living
  • 53% cut back on non-essential expenses
  • 29% reduced their expenditure on essential monthly expenses
  • 28% started dipping into their savings
  • Some made lifestyle adjustments:
  • 45% spend less on entertainment and eating out
  • 24% stopped taking holidays
  • 22% drive less
  • Others took on additional debt:
  • 10% took out a personal loan
  • 5% borrowed money from friends and relatives
  • 35% of consumers purchased electronic devices to boost their power supply during the past 12 months. Of these:
  • 34% bought a UPS
  • 34% bought an inverter
  • 25% bought a Wi-Fi network
  • 24% bought a generator
  • 20% bought solar panels
  • 15% bought a portable power battery

Responses from corporate and commercial entities

The survey revealed that 80% of corporate and commercial entities have been negatively impacted by emerging risks in the past three years. The challenging economy (66%, up from 62% in 2021) remains the key concern for business respondents, but other emerging risks are becoming more of a concern. Political unrest (59%, up from 48% in 2021), cybercrime (48%, up from 36%), and climate change (47%, up from 35% in 2021) have become increasing threats over the past two years.

Top 10 traditional risks identified by corporate and commercial businesses

  • Loadshedding/ power surge: 41% (2021: 9%)
  • Theft: 27% (2021: 34%)
  • Loss of profits: 20% (2021: 14%)
  • Economic downturn: 19% (2021: 34%)
  • Fire (electrical/ accidental/ wildfires): 19% (2021: 26%)
  • Motor vehicle (theft/accident): 17% (2021: 21%) – Transport sector: 48%
  • Machinery/systems breakdown: 16% (2021: 14%)
  • Climate Change: 16% (2021: 13%) – Agriculture sector: 45%
  • Interest rate: 13%
  • Political change (social unrest/violent protests): 12% (2021: 10%) – Transport sector: 24%

The impact of the challenging economic conditions on corpoarte and commercial entities

  • The challenging economic climate over the past two years has impacted almost all corporate and commercial entities. Key impacts have been reduced profits, lower business turnover and increased input costs.
  • The rising fuel price has impacted 90% of businesses stifling profitability, with companies in the transport and aviation sectors hardest hit.
  • Corporate and commercial entities reduced their expenditure on these business costs over the past 12 months:
  • 25% cut salaries/wages (fewer staff or salary freeze)
  • 21% reduced transport/fuel costs
  • 13% reduced domestic travel
  • 13% reduced debt repayments
  • 11% reduced expenditure on vehicles (sold/gave up lease)
  • 10% reduced international travel
  • 7% reduced expenditure on employee benefits (pension, life, disability, medical aid)
  • 6% reduced expenditure on commercial property/rent payments    
  • 4% reduced expenditure on warehousing
  • 2% reduced expenditure on short term insurance policies

The changing role of the broker

The 2023 Insurance Barometer revealed that the competition between direct channels and brokers will undoubtedly continue. Brokers add significant value in both the commercial and personal lines insurance space, but they cannot lose sight of why clients choose to transact through a broker, and how they deliver against those reasons. Even in this tough economic climate, they cannot focus on price alone and must add value to clients through strong risk management capabilities.

Top trends in the changing role of the modern insurance broker

  • 81% of brokers (91% commercial brokers) confirmed that they conduct a home/site visit to assess risk management
  • 41% of brokers (45% personal lines) send clients email/SMS updates on new risk management tools
  • 38% (44% personal lines) go through a risk management checklist on the phone
  • 66% of commercial lines brokers said their clients had expressed concern over grid failure cover exclusions
  • 37% of personal and commercial lines brokers find communication on policy covers to be confusing
  • Almost 7 in 10 brokers (69%) believe that the best way to reduce business risks stemming from failing infrastructure, is for insurers to support government through the Renewable Energy Independent Power Producers Programme (REIPPP)
  • Two-thirds of brokers believe that the best way to address systemic risks is through public-private partnerships (PPPs)
  • Two-thirds of brokers are optimistic about business over the next 12 months despite a tough operating environment
  • 86% of brokers plan on driving growth by prioritising sales and marketing over the next two years
  • 52% of brokers felt that a good track record in claims settlement was the most important reason for selecting an insurer
  • 32% (31% in 2021) of brokers said their choice of insurer was influenced by good broker consultants lending support
  • 32% of brokers said ease of doing business was a top deciding factor in their choice of insurer

Impact of the increased cost of living on brokers

  • The challenging economy resulted in reduced income and increased costs for many brokers
  • Nearly 40% of brokers made changes to the insurers they recommend based on premium increases
  • Two-thirds of broker respondents reported an increase in volume and value of claims in the past year
  • Brokers noted a change in client behaviour due to the increased cost of living:
  • 22% of commercial lines and 20% of personal lines brokers reduced their clients' insurance cover
  • 22% of commercial lines and 15% of personal lines brokers' clients put additional risk management measures in place
  • 17% of commercial lines and 14% of personal lines brokers' clients switched to a different insurer
  • 11% of commercial lines and 8% of personal lines brokers' clients cancelled a short-term insurance policy
  • 7% of commercial lines and 3% of personal lines brokers' clients opted for self-insurance

Technology to play a bigger role in streamlining business processes and risk management

Coutts emphasised the importance of greater adoption of digital platforms and technology, which are critical for driving business growth and enhancing efficiencies in the broker segment. Just over a third (34%) of brokers said they planned to invest in IT infrastructure over the coming year. "This was a positive finding for us but given that 78% of commercial and corporate respondents and 89% of consumers indicated that they were interested in more applications and tech-based services from their brokers, that number should perhaps be higher," he advised.

The survey revealed a particular interest in tech-based apps and services to help manage risk, among black consumers aged 25 to 34. This group were also particularly interested in non-technology-based support services such as risk assessments.

Meanwhile, big data and technology are helping to mitigate selected risks. Santam is already collecting and using geocoding data to understand risks better and reduce exposures to high-risk properties based on the likelihood of natural catastrophe disasters such as floods occurring in a specific area.

Conclusion

"Insurance makes individuals, businesses, and populations more resilient. Insurers that take the lead in democratising insurance – by providing affordable, appropriate solutions to the low- and mid-income markets, the youth, and small and medium-sized enterprises (SMEs) – will help drive financial inclusion through greater insurance uptake, building a resilient, sustainable future for our industry, our communities, and our economy," concluded Coutts.

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