These trends will shape South Africa’s insurance industry in 2023

South Africa faced several challenges in 2022, including climate-change-related weather disasters, load-shedding, and a rise in cyber-attacks. Combined, these obstacles created a demanding insurance landscape.

In 2023, insurers cannot operate similarly to how they did the previous year, especially if they intend to mitigate existing risks and pre-empt new ones that might emerge this year. Here are some of the trends the industry has faced in 2022 and can expect to continue seeing in 2023.

Increasing frequency and severity of climate-related disasters

KPMG’s latest South African Insurance Industry Survey 2022 reveals that during the 2011-20 period, weather-related disaster losses broke all previous records, leading to total insured losses of US$135 billion, the highest amount ever recorded. The new decade started with 2021 being the second-costliest year ever for insurers globally.

The impact of climate change is undeniable, with extreme weather events, like the flooding that displaced hundreds of people in the town of Komani in South Africa’s Eastern Province in February this year, increasing in strength and intensity.

These extreme weather conditions have destroyed economies, livelihoods, and lives and are impacting insurance availability and pricing. More so since the KwaZulu-Natal flood and storm damage claims reached over R4 billion in 2022 alone.

For this reason, 2023 will see more insurers implementing location-based underwriting to identify the geographic, location-specified risk profiles for properties taking out insurance. Similarly, insurers dealing with declining municipal infrastructure risk can attempt to mitigate their exposures by collecting an array of related geolocation-based information about the areas they insure.

Properties in low-risk locations will continue to be insurable without requiring much adjustment. However, those in higher-risk areas may become increasingly difficult to insure or lead to higher excesses and insurance premiums or additional expenses to meet special risk mitigation requirements imposed by insurers.

Insurers will need to review load-shedding policies

South Africa's intermittent power cuts continue to raise concerns about home safety and whether insurers will pay out load-shedding-related theft and damage claims. While some insurers don’t consider blackouts an insurable risk under most insurance contracts, more providers like Santam now consider the cause of the loss as a factor beyond the client’s control.

More insurers will, therefore, consider claims related to power surge damage or theft during load shedding, such as theft resulting from malfunctioning security systems during a power cut.

Cybersecurity insurance will become crucial for risk mitigation

According to Mimecast’s State of Email Security 2022 survey, three out of four South African companies saw more email-borne threats that year, 94% were targets of phishing emails, 55% said attacks were increasingly sophisticated, and 60% were hurt by ransomware attacks, up from 47% in the previous year, resulting in downtimes that lasted an average of about 11 days.

These growing attacks make cybercrime one of the most potentially fatal risks South African businesses face today.

As a result, cybersecurity insurance will be crucial for everyone with an online presence this year, more so for businesses responsible for protecting customers' information. So, 2023 will see cyber insurance play an essential role in helping organisations recover from any business interruptions and financial loss incurred from these attacks.

ESG will give insurers a competitive edge

The climate-change-related issues the country faces mean more insurers will likely be judged by the steps they take to limit the impact of climate change, not just by the plans they present.

More insurers will, therefore, need to adapt to emerging climate change-related risks and, in partnership with other role players, lead efforts to address the impact of climate change. For example, Santam has introduced a Partnership for Risk and Resilience (P4RR) programme, which aims to assist South African communities with becoming more resilient to disasters triggered by natural hazards.

The programme has provided critical disaster risk management support to 82 municipalities across South Africa, positively impacting 12.5 million people across the country. In 2022, the eThekwini Municipality's disaster preparedness received a significant boost with the signing of a Memorandum of Agreement (MoA) with Santam, which provided disaster risk management support, capacity building and advisory services to enhance the metro’s ability to prevent and handle future catastrophes such as floods, fires, and droughts.

Initiatives such as these are essential in building capacity in the country’s communities and making them more resilient to climate change and related disasters. Most importantly, they help build a sustainable and transformed economy and financially resilient societies that can withstand a turbulent and risky world.

Despite facing a turbulent 2022, South Africa's insurance industry is incredibly resilient. Over the years, it has demonstrated remarkable agility and adaptability in overcoming countless obstacles, especially following the impact of the pandemic, and this year will be no different.