Thabile Nyaba, Chief Risk Officer of Old Mutual Insure and Tarina Vlok, MD of Elite Risk
The insurance industry plays a crucial role in mitigating the impact of growing risks and uncertainties. Thabile Nyaba, Chief Risk Officer of Old Mutual Insure, President of IRMSA (The Institute of Risk Management South Africa) and Elite Risk Board Chair, together with Tarina Vlok, MD of Elite Risk, offer an optimistic view by emphasising that risks encompass both threats and opportunities.
By adopting a proactive and collaborative approach, insurers can navigate the current environment effectively and thrive amidst the disruptions.
This is the view of Thabile Nyaba, Elite Risk Board Chair, who recently spoke on how the insurance industry can mitigate the increased risks inherent in the current environment at the annual Elite Risk Wealth Conference. Elite Risk is a specialist high-net worth insurer and subsidiary of Old Mutual Insure.
“Risks consist of two components: threats and opportunities. While organisations and risk practitioners often focus on preparing for threats, it is essential to acknowledge the opportunities that arise from crises and disruptions. If we change our perspective to incorporate this view, we can become more resilient to these challenges,” said Nyaba.
She said that it is important to recognise the dual-nature of the risks, and that the severity and frequency of loss events are increasing, making it crucial for insurers to seek out the opportunities they present.
Risks and opportunity
Both Nyaba and Vlok identified several risks that insurers and organisations are needing to navigate at present.
Economic uncertainty and the inflationary environment
“The rising cost of living is creating difficulty for insurers to maintain a balance between pricing and retention and calculating the correct price for the risk. This makes for challenging renewal discussions,” said Vlok, adding that claims costs are increasing more so than inflationary increases.
Most developed market economies such as the United Kingdom, Eurozone, USA, and Japan experienced a massive spike in inflation from 2020 until 2022, after nearly a decade of low inflation. Global inflation appears to be easing, and in South Africa, while there are some positive signs of improvement, this is not yet reflecting in the cost of claims.
“This is especially in the case of motor vehicle parts and building costs. Combine this with clients who are cash-strapped, and it becomes very challenging to find the correct balance. Insurers are looking for innovative ways to save clients’ money, whilst still providing sufficient cover,” said Vlok.
However, the opportunity, said Vlok, is to leverage relationships and keep engagements with intermediaries conducive to problem-solving.
“In the affluent market, it is especially important to harness relationships with intermediaries and keep the dialogue open so that a solution can be found that works for everyone,” says Vlok.
Some examples include increased excesses to bring premiums down, and to reduce specific cover. During COVID-19 special toolkits were designed by insurers to help clients and brokers understand options available, and Vlok said perhaps it is time to revisit this.
“Review your sums insured and make sure they are correct without exposing yourself to being underinsured. Review your cover for items that you take outside the house under ‘All Risks’ to see if this can be reduced, and consider increasing your excess,” she suggested.
The energy crisis
Another risk is the energy crisis, and for many in the affluent segment, the answer has been solar panels and inverters.
“Clients are going to huge expenses to install backup power and it is a growing area of uncertainty. The reality is that insurers don’t have sufficient data for this yet, and so pricing and claims settlement may present some challenges,” said Vlok.
Here the opportunity is for insurers to collaborate with experts in the field to understand the problem better. “Having as much knowledge as possible in this changing environment is in the interest of your business and your staff.”
The change in weather patterns
Latest research from the Council for Scientific and Industrial Research (CSIR) suggests that more severe weather is on cards following its El Niño findings. CSIR experts are warning that dry and extremely hot conditions can be expected soon. The CSIR emphasised the need for early preparation in anticipation of the potential impacts of the El Niño in South Africa and its neighbouring countries.
“The change in weather patterns is causing a headache for the insurance supply chain given its three-way impact: We need to price for a specific risk and consider the increasing cost of reinsurance due to a significant increase in catastrophes (CAT). However, you can’t price yourself out of the market, and insurance needs to continue to play an important role during times of disaster. Considering that consumers have limited financial resources, how to navigate this situation?”
Vlok said that the opportunity for insurers here is to work with experts to find solutions and consider partnerships with local authorities such as disaster management, as well as stakeholders like municipalities to mitigate the risks in the interests of all parties.
She adds that policyholders also have a responsibility. “The persistent wet weather in Cape Town is seeing us having to reject numerous claims because of lack of maintenance, particularly waterproofing. Yet, maintenance doesn’t have to cost a lot, and prevention is far more cost-effective.”
She reminds policyholders that during times of flood and catastrophe like what we recently experienced in the Western Cape, the most important thing is safety, as lives cannot be replaced.
Nyaba said that infrastructure failures can have significant implications for insurers. Whether it is the failure of critical assets or concerns about a failing state, insurers need to assess and manage these risks to protect their own assets and ensure the sustainability of their operations.
Nyaba added that geopolitical factors, such as potential sanctions and political instability, can have far-reaching consequences for insurers. Understanding and managing these risks is crucial to maintain stability and ensure the smooth functioning of the insurance industry.
“Our massive unemployment and poverty rates in SA are the drivers for crime, with syndicates and sophisticated criminals taking advantage of the situation. Insurers are paying the price for this,” said Vlok, adding that Elite Risk is dealing with a marked rise in the theft of luxury vehicles.
She suggests that there is a need for businesses to work closer with government to alleviate these problems.
“Learnership programmes provide opportunities. It is essential that businesses look at assistance they can offer and how best they can make a difference,” said Vlok, adding that kindness is a key mantra at Elite Risk.
The people risk
Nyaba emphasised the importance of addressing people risk within the insurance industry. The well-being and engagement of employees are critical to the successful execution of strategies. Organisations must prioritise taking care of their workforce to effectively manage and respond to risks.
“The biggest risk facing the insurance industry is the shortage of skills and the brain drain. This is why programmes and initiatives like the FA News Insurance Apprentice – which aims to attract talent to the insurance industry – is so valuable. We need to harness these bright young minds and be open to their alternate view of the world. We can do this by giving younger staff a voice and allowing them to raise their opinions without fear. This is going to be critical in maintaining and attracting talent,” said Vlok.
Collaboration is the key
Nyaba said that collaboration is the most significant opportunity for the insurance industry in mitigating these risks.
“Insurers must think beyond their individual organisations and collaborate to address the risks and threats collectively. By pooling resources and leveraging technology as an enabler, insurers can proactively tackle challenges such as climate change. For instance, sharing insights and collaborating on projects like building resilient infrastructure and addressing drainage problems can yield effective risk mitigation solutions.
“Against the current environment, it is essential for insurers, brokers and intermediated businesses to think and act differently as well as work collaboratively to address risks that impact not only the insurance industry but also the broader community and country as a whole,” concluded Nyaba.