2021 Insurance State of the Market

Aon South Africa delves into local market trends in its latest report on the 2021 insurance state of the market. 

According to Alicia Goosen, Aon South Africa’s Chief Broking Officer, one of the greatest lessons of the past year is that traditional enterprise risk management (ERM) processes failed to identify the full scale of the pandemic as its impacts materialised into multiple and interlinked key risks to organisations, such as liquidity, credit risk, human capital and accelerated rates of change.

“However, there is overwhelming evidence that taking an enterprise-wide approach to the response was the most valuable approach, and one that organisations are likely to carry forward. With existing and emerging risks converging, future shocks on organisations’ radar, and heightened risks such as cyber associated with the pandemic’s remote and digitised workforce response, organisations have to take steps to reprioritise risk and resilience,” says Alicia.

Top 9 insurance market trends affecting South Africa

1. Risk readiness is falling

While risk readiness is falling, volatility is growing due to the financial implications of uninsured losses.

2. Reinsurance markets are hardening

The reinsurance market continues to harden into 2021 which ultimately has a knock-on effect on the overall market. COVID-19 claims, high natural catastrophe losses and poor returns on investment have led to widespread rate increases. Prices hardened in all major lines of reinsurance business and geographies for excess-of-loss treaties.

3. Capacity is reducing

Insurers continue to withdraw from poor performing classes and refocus their appetite especially on challenged occupancies such as the mining sector, heavy industry, textiles, food industry and any cold storage-related exposure (Expanded Polystyrene), as well as from poor performing classes such as D&O, professional indemnity, casualty, cyber, natural catastrophe exposed and large limit property

4. Property rates will continue to increase

Property rates have been increasing for the past three years and are expected to continue increasing in 2021.  Increases in 2021 could be as much as 30% up, based on acceptable claims performance. COVID-19 will continue to have a major impact on the sector in 2021 amidst increased competition for tenants, capital and property assets.

5. Climate Change

Weather catastrophes and resultant losses are intensifying with climate change. It is already taking on increased prominence as consumer attitudes change and investors seek assurance that companies have identified and put in place plans to mitigate climate change risks.

6. Growing geopolitical and socio-economic risks

GDP growth prospects for 2021 are expected to be negative, with investor and consumer confidence at the lowest ebb since just before South Africa’s transition to democracy in 1994. Further credit rating downgrades will lead to increased financial market volatility.  Record high unemployment rates and failing service delivery and infrastructure are likely to fuel heightened destructive social unrest. Deteriorating public infrastructure, poor local administrative delivery, energy shortages and load shedding are significant risks to business continuity and profitability.

7. Regulatory Changes

Compliance with both local and international laws and regulations will increase risks and costs of compliance and working.

8. Cyber Risks are amplifying

Cyber security and privacy risks are being amplified by the pandemic with remote working and digitised workforces spurring a marked increase in cyber-attacks and large-scale disruption. A robust technical infrastructure and end-to-end digital processes are key elements to safeguard productivity.

9. Market volatility drives need for payment protection

South Africa is currently experiencing difficult political and economic conditions, which is driving the need for trade credit insurance.

“In order to mitigate the risk, boards and executive management teams need to broaden their perspective when considering risk and increase their focus on identifying and evaluating future major shocks that could disrupt strategic objectives and present threats to the organisation. This will help organisations increase their preparedness and explore opportunities to enable them to thrive. It is becoming clear that resilience plans associated with prior business models will not be sufficient to protect organisations from these emerging risks,” Alicia explains.

It would be wise to proactively prepare for change in the insurance market insofar as price increases, deductible increases and other program changes are concerned. “Coverage restrictions are being applied and fewer coverage extensions are available as insurers seek to return to core coverages. A hardening insurance market sees more organisations walk a tight line between transferring and managing risk, emphasising the need for robust risk management functions to be employed by organisations,” says Alicia.

“It is crucial to identify the risk trends that are affecting your business with the aid of a professional insurance broker by your side. A good place to start is to refresh your organisation’s risk assessment processes, by bringing the insurance buying function and enterprise risk management (ERM) teams closer together to achieve effective risk profiling. Starting the process early will allow more time to reflect upon your organisation’s approach to risk and the degree of insurance cover required. An informed risk financing strategy will greatly aid organisations to successfully navigate the insurance market so that the line between risk transfer and risk management is positively differentiated,” Alicia concludes.

Download Aon’s 2021 insurance state of the market here