CEOs of SA insurance companies see climate change as the biggest threat to growth –

CEOs of SA insurance companies see climate change as the greatest threat to growth, as they see demand from stakeholders, such as investors, regulators and customers, for increased reporting and transparency on environmental, social and governance issues and risks.

KPMG South Africa’s annual survey of the insurance sector in South Africa for 2021, launched on Thursday, indicates a strong focus on risk management in key areas, such as environmental risk.

At 29%, this was far more than the global figure of 7%, while CEOs around the world were more concerned about regulatory (17%) and tax (16%) risks.

This is not surprising, as the insurance industry is strongly affected by environmental changes and therefore believes that these risks and exposures should be identified, measured and addressed through governance, strategy, management. risks, product offerings and associated reports.

Environmental, social and governance (ESG) issues also include corporate governance, market conduct, data privacy and cybersecurity breaches. Forty non-life insurers, 21 life insurers and seven reinsurers were surveyed.

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Threats from insurance companies to growth and risk

According to KPMG, although some insurers have considered and potentially modeled pandemic-like scenarios in their own risk and solvency assessment scenarios, only a few, if any, have considered the linkages and connectivity between them. risks to fully anticipate the impacts on stock markets, interest rates, operational risks and persistence risks.

In 2021, insurers saw cybersecurity as the biggest threat to insurance company growth, with environmental or climate risk in second place, followed by supply chain, emerging or disruptive technologies, regulatory risks and operational.

In 2020, the main concern was the talent risk, followed by the supply chain, the return to territorialism, environmental and climate change, cybersecurity and emerging or disruptive technological risk.

The survey indicates that while the insurance industry has been hit hard, it has been resilient and adaptable.

“The ripple effect and interconnection of risks emanating from Covid-19 was amazing and these impacts, along with their speed of onset, must be taken into account to gain a comprehensive understanding of the potential implications for the future.” , Mark Danckwerts, partner at KPMG and African leader in the insurance practice, said.

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Life insurance

In the life insurance industry, an analysis of 21 of South Africa’s top life insurance licenses, covering 88% of the market in terms of total assets, indicated that the top five life insurers have increased their asset base of 3.5%, with the remaining smaller entities overtaking their larger counterparts with a 9.3% growth in assets.

Net premiums, reflecting the risk and FIDP activity for these entities, only increased by 2.2%, while the performance of the smaller life insurers overall increased by around 8% on average, resulting in a slight variation in the share of premiums. Despite this, the top five still generated more than 87% of the total premium written by the market.

“While the hard lockdown had a direct impact on the ability to make sales, with the impact felt during the initial phase of transitioning to remote working, reports in 2021 suggested that had changed slightly, but recent civil unrest has put another smaller ability to engage directly with the customer, ”says Danckwerts.

Although the life insurance industry saw low premium growth, poor investment performance, and large claims that grew from a total industry profit of nearly Rand 22.1 billion over the period 2019 at a loss of 2.6 billion rand in 2020, dividends for respondents to the entities fell from 16.1 billion rand to 18.5 billion rand, the insurance industry -life remaining well capitalized.

However, policyholders may decide that life coverage is a lower priority once the vaccination rollout has reached its full scale. This will require tough business decisions, especially when you add tough moral decisions for life insurers regarding vaccine mandates for employees, vaccine premium adjustments for policyholders, and issues of re-pricing policies to recoup some. of the losses suffered.

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Non-life insurance

The non-life insurance industry reported gross written premiums of R128 billion in 2020, an increase of 5%. Danckwerts says this indicates that the impact of the pandemic on the industry has not been as severe as expected and is commendable given the premium relief measures many non-life insurers have provided to their customers.

The insurance company sector posted an after-tax profit of R6 billion in 2020, a decrease of 28% from 2019, due to the many challenges faced by the sector, including defaults, an increase net claims of 1.9 billion rand and a ratio of 59.5%.

While there has been a decrease in weather-related catastrophes and a reduction in the auto loss ratio, there has also been a much larger increase in business interruption claims, while trade credit insurance and consumption have been seriously affected and directors ‘and officers’ liability insurance claims have increased in frequency and severity.

Total investment income also decreased by 31.9% due to the interest rate environment and fair value losses, with gross insurance liabilities increasing by 27.2%. In 2020, the market share of the 10 largest insurers according to GWP was 73.8%.

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Key themes

During the investigation, a few key themes emerged, with insurers focusing on key learnings in terms of planning and managing channel overload, optimizing digital advancements to keep pace with emerging risks, enhanced scenarios and stress tests and social accountability to ensure they are listening. to their policyholders in order to mitigate the impact of the brand.

“A key theme emerged overall; With the rapid pace of change in the interconnected world we live in today, we can rely less on past data to predict future outcomes. It’s time to shine a light on what we call ‘200-year events’ with a vision of what the future might look like and how it might differ from our limited understanding of historical events, ”says Danckwerts.

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Justin D. O'Neill

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