South Africa’s infrastructure is vulnerable to cyberattacks, as highlighted during 2021, while the risk of the electricity grid’s failure accelerated in 2021.
There are also concerns that a repeat of the riots experienced in July last year could be on the horizon this year, says insurance company Old Mutual Insure MD Garth Napier.
He points out that many government institutions were held to ransom as a result of cyberattacks last year, causing major blockages and delays at the supply chain level and at the ports.
“It is clear that it is no longer a case of if a massive cyberattack happens, but rather when. Our emerging economy simply cannot afford even one such devastating event,” he says.
“The insurance industry is at a critical juncture as we wrestle with what the increase in cybercrime means for existing policies. On one hand, commercial customers are keen on a product with specific provisions for attacks related to cyber losses, with the global trend of fewer insurance companies offering policies against cybercrime, saying it simply encourages more such behaviour.
“On the other hand, we are seeing demand from individuals for protection against cybercrime losses, as more individuals use personal devices for banking. This is only going to increase as we rely more on technology. We need to find a solution that will allow insurers to produce a product at an affordable price for customers,” he says.
Further, South Africans have become accustomed to load-shedding in winter, but the grid has been volatile, with power insecurity prevailing throughout the summer months. The implications of grid failure would be catastrophic, Napier warns.
“Research from the South Africa Insurance Association (SAIA) suggests that a similar event would take our country two to three weeks to get back up and running. The knock-on effects would be devastating, including that there would be no water, owing to no pumps being able to operate, failure of security systems and cellphones would not work, given that mobile tower back-up batteries would never outlast such an event.
“This is a very real risk facing our country and the insurance sector,” highlights Napier.
Additionally, Old Mutual Insure is concerned that a repeat of the riots could be on the horizon in 2022, which would devastate the economy and the insurance industry.
The implications are that the South African Special Risk Insurance Association (Sasria), which never experienced such a level of civil unrest in South Africa’s democracy, will be in a very difficult financial position to honour claims on a similar scale to those experienced in 2021, he warns.
Outlook
From an insurance claims point of view, the industry in 2021 experienced reasonably benign figures compared with 2020.
“This may seem surprising in light of the looting claims and Sasria payouts of more than R32-billion, but our role was to support Sasria and most policies had exclusions in place,” says Napier.
Further, motor vehicle claims have decreased and claims as a result of disasters like floods and fires are down.
“However, we expect this to change in the future, given the massive implications of climate change. This is something we are seriously thinking about and applying to our risk modelling on a daily basis. We don’t have all the answers yet and view climate change as a risk that we are on a journey to unpack,” he highlights.
Additionally, although the impact of the pandemic has been devastating for many, Old Mutual Insure has seen some positive trends in insurance.
The insurer saw new business models emerge in the agricultural space. Online auctions were not a reality prior to 2020, but players in the agriculture sector can buy livestock and insure it from the date of purchase to the date of delivery, significantly decreasing the risk of something going wrong in between.
“We launched a product to this effect with partners SwiftVee in 2021. It is still a small contributor to our bottom line, but we foresee this to grow in time.
“This approach underpins how we are viewing newer, smaller and nimble insurance technology players coming to the market, namely that we don’t see them as a threat, but as potential partners to take innovative solutions to market,” he says.
Meanwhile, another positive trend in the individual insurance market is that lockdowns have reduced motor claims, while some of the uptick in economic activity has driven some to get insurance cover. The impact of continued lockdowns is likely to be neutral if not slightly positive on the individual insurance market due to lower claims.
“However, a global trend that is putting pressure on our ability to manage motor claims is supply chain disruptions as a result of the global microchip shortage in the automotive market. “The shortage of parts is driving up the price of parts, and we foresee it being a blip in the short-term insurance market lasting between 12 and 18 months, as it is more expensive to repair vehicles.
“We think this is going to accelerate the shift towards a shared economy model, where our customers in the personal motor insurance market will shift from individual to being a small corporate or business. “This is especially so as the trend to use services like Uber and Taxify increases owing to cost,” says Napier.
This year, use-based insurance models are likely going to increase and allow the insurance industry to deliver cutting-edge solutions to customers. Policyholders will begin to question why they pay a fixed premium if their risk is lower.
This is especially true for vehicles, and when individual risk profiles come into play. Products that offer a rebate or money back based on how often and how far a person is driving will steadily become more popular, and this will drive a big shift in products that launch, as well as innovative pricing models, he notes.
“The South African insurance industry is a vital socioeconomic sector that provides a critical safety net to society. “This notion was crystallised in 2021, as we continued to grapple with the fallout from the pandemic and the implications of the disease on the short-term insurance market,” Napier says.