Carnage’ ahead as a decade of low insurance prices ends

Risk managers must expect a rapid increase in their insurance bill as they head into 2018, warned South African brokers, as a series of claims in South Africa and the bad hurricane season have combined to turn the markets. While not every class of business will be affected, the expectation is that the market across Africa has ‘bottomed out’ in terms of prices and that risk managers will have to answer many more questions about their risks. Neels Cornelius, business development leader at Willis South Africa, has warned that risks which might have been placed in one to three months this year, might take six months as 2018 starts, because insurers will want much more information. “In the past, insureds might have had to answer a few questions but now they can expect a thick book of questions, as insurers want to gain much more insight into the risk,” he said. Mr Cornelius echoed other brokers in the market, who are all seeing the same trends. Worries about accumulation of risks are top of mind for most insurers, who do not want to be caught napping again if large losses come in. Led by many of the reinsurers, both local and global, rates on the property book are already rising, with larger increases expected as 2018 rolls in. But other classes have been impacted too. Mr Cornelius said, for example, that insurers are waking up to the threat of large cyber losses – and a large accumulation of risks. “It is a global accumulation that insurers do not fully understand,” he said. Hotspots There are other hotspots too. D&O cover is another insurance that has become much more popular in the past year but which is causing the insurers concern, particularly for risks around state-owned companies. However, the most obvious price rises are in the property book. Mr Cornelius said insurers are paying particular attention to any risks involving hot work, after a massive fire at a Durban warehouse led to large losses. The problem for the warehouse insurers turned out not to be the fire itself but the contingent business interruption claims. As Mr Cornelius explained: “The insurers found themselves paying out on claims for businesses that they had no idea of. These businesses had stock in the warehouse and the fire left them unable to operate.” For the future, risk managers can expect to have to provide much more detail about any such links, so insurers can build a fuller picture of the exact risk they are taking on, said Mr Cornelius. “After a decade of a ‘soft’ market, 2018 will be carnage,” he warned. “Corporate customers are not seeing it yet, but as brokers we are getting ready for it and risk managers will need to do the same.” Waiting for Europe Much of this is being driven by reinsurers. At the African Insurance Organisation Reinsurance Forum in Mauritius, reinsurers said they were waiting for a lead from Europe on pricing, hoping to see increases after a decade of low rates. Speaking at the forum in Mauritius, reinsurers said they want to see rates rise but are waiting on news from the Baden Baden reinsurance event to see how the Europeans act. Already, certain classes of business in South Africa are attracting higher rates, notably in property after a few large losses, but other classes of business remain highly competitive. Now, however, as the full cost of the Caribbean hurricane season emerges, reinsurers are hoping to see signs of shifting rates in Europe, which will dictate how the 1 January renewals go in Africa and the Middle East. Several of the reinsurers report they are seeing tightening rates and tougher terms and conditions already but, so far, the premium rates are yet to move. However, they expect reinsurers to make tougher bargains in Baden Baden which, they hope, will filter down to the markets. One concern however is the increasing demand for localisation in Africa, with regulators forcing risks to be placed in the domestic market before going into the international markets, which they say runs the risk of leaving insureds without proper protection. One reinsurer explained that local markets are not always taking a disciplined approach to risks and not necessarily buying enough reinsurance, ultimately running the risk of a failure somewhere along the chain. Another risk that the market is currently running is accumulation. As shown by the warehouse fire in Durban, insurers run the risk of not always fully understanding the extent of the risks that they are carrying. Overall, however, reinsurers and brokers alike at the African Insurance Organisation Reinsurance Forum were bullish about the African markets, in particular after the Caribbean hurricane season. As a benign natural catastrophe region, they believe there are plenty of opportunities for overseas players to do well on the continent.

Carnage’ ahead as a decade of low insurance prices ends

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