Santam Insurance Barometer reveals rapidly evolving risks in South Africa

Santam, South Africa’s largest short-term insurer (STI), has released its 2020/2021 Insurance Barometer report on insurance trends, which shows that the challenging economy, political unrest, the pandemic impact on businesses, cybercrime and climate change are among the top risks highlighted by consumers, intermediaries and corporates polled.

The 2020/2021 Santam Insurance Barometer is a survey that measures the collective concerns of participants - consumers, intermediaries, and corporations / commercial entities - to identify insurance-related trends, perceptions and client needs. First introduced in 2019 the survey not only highlights the contribution of the insurance industry in protecting the assets of consumers and businesses, but develops insights into how the STI sector can add value to the economic vitality of South Africa.

More than 950 respondents that include consumers, corporates, commercial users and intermediaries across the country were polled during the study, which was done between 2020 and 2021.

“A thriving insurance sector is a critical cog in any healthy economy. Insurance makes people and businesses more resilient. Adequate cover helps them to bounce back when things go wrong. The knock-on effect of this is that they have more financial confidence, which means they will be happier to spend more in their personal lives and invest in their businesses; both serve as the lifeblood of economic growth,” said Andrew Coutts, Santam’s Head: Intermediated Distribution.

The survey specifically measured the risk trends impacting South Africa, the impact of COVID-19 on individuals and businesses, the insurance industry’s response to the pandemic, perceptions of the industry, how it needs to adapt to changing market realities and client needs, and the changing role of intermediaries. Key findings of the study include:

CONSUMERS:

Among the most notable trends among South African consumers over the past 18 months was that 50% of consumers reduced the number of kilometres driven each week by an average of 44%, from 162km to 90km per week.  On the technology front, 16% of consumers upgraded their computers and connectivity to enable them to work from home, and three in four people reported an increase in their use of technology.

“This change in behaviour was evident in Santam’s claims experience – while there was a notable rise in buildings (16%) and household content (6%) claims (the second and third largest claim categories respectively). This was offset by a significant decline in motor vehicle claims, which normally accounts for a significant share of personal insurance claims. Even though there was a decline in claim volumes, there was a significant hike in the average value per claim in the motor category. The severity of vehicle accident damage likely increased as a result of more people speeding, due to having less vehicles on the road. 

The Insurance Barometer revealed that consumers are more concerned with crime related risks compared to other polled groups. Unemployment is also a growing concern. Motor vehicle accidents and burglary were less of a concern in the 2020/21 survey, possibly due to the lockdown. The results showed that: 

• 44% of respondents thought motor vehicle accidents were a major risk (2019 - 58%)
• 43% considered burglary / house-breaking a major risk (2019 – 56%)
• 27% hijacking (2019 – 32%)
• 27% rising crime (2019 – n/a), (did not previously feature)
• 26% theft (2019 – 41%)
• 23% unemployment (2019 – n/a)
• 16% pandemics (2019 – n/a)
• 15% muggings / robbery (2019 – 20%)
• 14% accidental loss / damage (2019 – 5%)
• 10% theft / cloning bank cards (2019 – 21%) 

IMPACT OF COVID-19 ON CONSUMERS:

• 81% of consumers reported a negative impact due to the pandemic,
• 60% experienced financial loss, i.e. unable to work / contribute to household finances whilst household expenses increased,
• 81% of those who experienced financial loss were able to use savings to see them through,
  • 19% borrowed money from friends and relatives,
  • 8% were able to draw on insurance policies,
• Only 1% cancelled short term insurance policies – home contents, all risk and motor vehicle,
• 26% were offered premium relief by their insurers and 93% say this eased their financial burden,
• 2% switched to a different insurer,
• 59% reduced restaurant outings / food takeaways, when looking to reduce expenditure,
  • 45% reduced their travel / petrol, clothing, footwear, accessories expenditure,
  • 33% hobbies, sports and gym expenditure,
  • 28% groceries,
  • 23% TV subscriptions,
  • 19% domestic travel,
  • 15% cellphone contract,
  • 10% repayment of debt,10% school fees, etc.

CORPORATE AND COMMERCIAL ENTITIES:

The struggling South African economy remains the biggest emerging concern for commercial entities – 62% of respondents ranked this as their number one worry. “The economic downturn has impacted businesses across our specialist lines of insurance. In particular, we’ve seen the marine, heavy haulage, taxis (including e-hailing), aviation, travel and the construction industries contract as a result of the economic challenges,” said Coutts. 

The key risks were ranked by corporate and commercial entities in the following order of significance: 

• 34% of respondents identified theft as a major risk (2019 – 62%)
• 34% were concerned that an economic downturn was a major risk (2019 – 18%)
• 26% listed fire as a major risk (2019 – 27%)
• 21% motor vehicle accidents (2019 – 28%)
• 17% business interruption (2019 – 6%)
• 17% pandemics (2019 – n/a), (did not previously feature)
• 14% machine breakdown (2019 – n/a), (did not previously feature)
• 14% loss of profits (2019 – 18%)
• 13% climate change (2019 – 14%)
• 11% public liability (2019 – 19%)

Commercial motor claims showed a 16% (2019/2020) decline in volumes – with the downward trend continuing into Q1 2021 with a 6%  decrease. However, motor claims are still the biggest claim category by value (excluding the recent business interruption claims) despite the drop in volumes. The average cost per claim was up marginally between 2019 and 2020 with 2.8% and increased further, by 8.2% year-on-year in Q1 of 2021.

Overall, the average cost per claim in the commercial insurance lines increased by a staggering 103% year-on-year 2019/2020, this was mainly driven by contingent business interruption (CBI) claims resulting from the pandemic. Property claims increased by 7% in 2020 while there were fewer fire claims than usual due to business premises being unoccupied for an extended period during the hard lockdown. Fire is historically the leading claim category by value.

IMPACT OF COVID-19 ON CORPORATE AND COMMERCIAL ENTITIES:

Hospitality, transport, aviation, marine and construction industries have been particularly hard hit.  Also, those who don’t take risk management seriously.

• 45% of small / medium commercial enterprises polled, reported a very negative impact on their businesses due to COVID-19, with 30% of large corporates and 21% of large commercial enterprises also recording a similar impact,
• 56% of large commercial enterprises, 53% of large corporates, 38% of small / medium commercial businesses, reported a moderately negative COVID-19 impact on their entities,
• 62% of corporate & commercial entities have seen a loss in profit,
  • 31% lost clients
  • On average, profits declined by 38% in SMEs, by 36% in large commercial and by 24% in large corporates
• 28% had to retrench staff ,
  • 30% put staff on partial pay,
  • 11% compelled staff to take unpaid sabbaticals,
• 41% of hospitality sector enterprises were faced with business closure, 84% lost profits and 59% staff retrenchments,
• 80% of transport sector businesses had profit losses compared to 77% of construction companies,
• 10% of businesses polled diversified into new product lines,
• 8% moved to online sales and delivery,
• Only 3% reported an increase in profit this year (mainly SMEs)
• 3% filed business interruption claims, 2% business all risk claims, 2% for accidental damage, 2% theft, 2% buildings, 1% vehicles, 1% public liability, 1% machinery breakdown.

INTERMEDIARIES:

Intermediaries continue to play a more important role in the commercial market (especially among large corporates) compared to the personal lines market where the preferred purchasing channel remains through direct insurers.

• 81% of commercial intermediaries (and 63% of personal lines intermediaries) anticipate more consolidation of intermediary firms due to a difficult trading environment,
• 65% of intermediaries felt there was a need for insurers to show clients how claims behavior influences premiums,
• 71% say communication on policy coverage is “very/fairly clear”, 29% say it is confusing,
• 57% reported that over the next two years they foresee increased use of technology for client interaction,
• 51% anticipate that increased regulation will make it difficult for small brokerages to survive,
• 31% of intermediaries said their choice of insurer was strongly influenced by good broker consultants that lend support,
• 28% predict that the industry will become more niched, focusing on specific types of clients,
• 26% said their choice of insurer was influenced by a reputable brand,
• 19% indicated that long-standing relationships influenced their choice of insurer,

IMPACT OF COVID-19 ON INTERMEDIARIES:

• 65% have recorded an increase in policy amendments / reduced cover etc.,
• 59% of intermediaries reported that the pandemic had a negative impact,
• 53% reported spending more time on admin and less on new business sales,
• 47% an increase in policy cancellations,
• 43% said they had experienced a loss in profits ( 22% average profit loss),
• 37% set staff up to be able to work from home,
• 9% saw an increase in profits,
• 8% put staff on partial pay,
• 3% Closed one or more offices / did not renew commercial leases, 3% closed down entirely for all, or most, of the duration of the pandemic,
• 2% retrenched staff, 

TECHNOLOGY SET TO PLAY A BIGGER ROLE IN BUSINESS AND DAILY LIFE:

Coutts said one of the key findings highlighted in the report is the increased use of technology by intermediaries, corporates, commercial entities and consumers.

“Both intermediaries and businesses said there was a trend towards greater use of technology for client interaction and back-office processes but also remote working during the pandemic. Consumers also highlighted a change in their use of and investment in technology, and, across the board, there is an anticipation for technology to disrupt business models and change behaviour,” he said.

Additionally, the increased use of technology has led to concerns about cybersecurity, by companies and intermediaries.

“The risk landscape is becoming increasingly complex. Given the critical role insurance plays in facilitating business continuity in the event of a claim incident, the decision to purchase insurance must involve more than a cost analysis. Business owners are urged to remember that insurance cover and good risk management practices go hand-in-hand to provide the necessary protection. Effectively managing risk leads to fewer claims, which results in more affordable insurance premiums over the long term,” concluded Coutts. 

The full report can be accessed here.