Picture: SANTAM
Picture: SANTAM

The explosion of new risks such as those relating to climate-change damages and cybercrime, in a country in which a shrinking number people can afford to buy short-term insurance, is turning the industry on its head.

In presenting SA’s first general insurance barometer on Tuesday, the country’s largest short-term insurer, Santam, said an increasing number of people are struggling to afford insurance. Even among the insured, 38% of polled consumers chose not to cover some of their belongings.

“This is not about uninsured people. It’s the insured market actually saying we are selecting to uninsure certain risks. Affordability is a huge driver in our insurance market,” said Santam’s head of intermediated business, Andrew Coutts.

Though the number of people who can afford to buy insurance is dwindling, general insurance companies cannot keep increasing premiums as this could cause more people to struggle to afford insurance, Coutts said.

It’s not about paying the claim anymore — it’s about not paying the claim ... We have to move to the space where it becomes about [diminishing] the risk
Andrew Coutts, Santam head of intermediated business 

It also means insurers cannot easily pass on the escalating cost of replacing people’s belongings after an accident, theft or weather damage. The only option insurers have is to try to prevent these incidents from increasing, Coutts said.

“In the space where risk is exploding on the ground, we can’t just follow the old process of increasing rates because, fundamentally, that’s going to make us fall off the cliff.”

Coutts said the industry has to shift to a new way of doing insurance, one driven by fourth industrial technologies and the internet of things in which consumers can get notifications on their phones before overheating wires cause fires, leaking geysers damage ceilings or malfunctioning fridges ruin a business’s entire stock.

“It’s not about paying the claim anymore. It’s about not paying the claim … We have to move to the space where it becomes about [diminishing] the risk.”

Santam has started deploying SIM card-enabled smart geyser monitors in some complexes in Johannesburg, Cape Town and Durban. Coutts said the industry is pumping billions into technologies such as telematic devices and wearables such as smartwatches.

Risk pools

This was driven by insurers’ desire to manage their claims risk but also because more customers are demanding it. A total of 82% of consumers surveyed in the barometer called for greater use of smart devices so insurers can price each person’s premiums based on the riskiness of their behaviour.

Keeping a lid on insurance premiums through prevention interventions also means the pricing of insurance might become more inclusive and thereby help companies expand their risk pools. Expanding risk pools is what the industry needs to survive while the severity of claims is increasing faster than insurers’ ability to increase premiums, said Coutts.

“We’ve got to broaden the base. We have to make insurance accessible to more people than currently are able to access insurance. And just by nature of a broader risk pool, you drive sustainability,” he said.

The industry has touted compulsory third-party motor insurance as one of the ways in which it can increase the pool of insured people. But the government has not pronounced a policy direction on that.

Zakes Sondiyazi, insurance risks manager at the SA Insurance Association, said the government has started to engage the industry on the issue of compulsory third-party insurance.

“There’s traction now. There are engagements, there are talks, there are collaborations where some issues that we highlighted — the advocacy of compulsory insurance, agriculture-related initiatives — we are talking about these incentives,” he said.

buthelezil@businesslive.co.za