South Africa facing ‘momentous shift in risk landscape’

Corporate and commercial entities in South Africa have been negatively impacted by emerging risks in the past three years, according to the 2022/2023 Santam Insurance Barometer Report, including the challenging economy, political unrest and climate change. And the local short-term insurance industry is currently facing a momentous shift in the risk landscape, according to the South African broking firm Santam. Traditional risks are also causing concern, with loadshedding/ power surge topping the list of risks identified by corporate and commercial businesses (41% in 2023 compared to 9% in the 2021 survey). Andrew Coutts, CEO of Santam Broker Solutions, said: “Climate change, infrastructure concerns and socio-economic challenges have created a tough environment for local insurers, who bear the responsibility of ensuring their balance sheets can sustainably withstand the cost of the risks dominating the environment they operate in, while also protecting the financial well-being of clients, and the safety of communities,” he said. He added: “Two standout claims trends developed in both the personal and commercial lines categories over the past two years that required corrective actions. The most notable being an exponential escalation of power surge claims related to loadshedding, followed by high-value vehicle hijacking and theft,” said Coutts. He said that Santam had experienced an exponential jump in both volume and value of power surge-related claims across personal and commercial lines of business for two consecutive years, in 2021 and 2022. The combined claims volume was up by 39% in 2022 (37% in 2021) and the value of claims paid across both lines soared to 48% in 2022 (after an astonishing 53% in 2021). The survey revealed that 80% of corporate and commercial entities have been negatively impacted by emerging risks in the past three years. The challenging economy (66%, up from 62% in 2021) remains the key concern for business respondents, but other emerging risks are becoming more of a concern, said Santam, noting that political unrest (59%, up from 48% in 2021), cybercrime (48%, up from 36%), and climate change (47%, up from 35% in 2021) have become increasing threats over the past two years. The top ten traditional risks identified by corporate and commercial businesses in South Africa are: Loadshedding/ power surge: 41% (2021: 9%) Theft: 27% (2021: 34%) Loss of profits: 20% (2021: 14%) Economic downturn: 19% (2021: 34%) Fire (electrical/ accidental/ wildfires): 19% (2021: 26%) Motor vehicle (theft/accident): 17% (2021: 21%) – Transport sector: 48% Machinery/systems breakdown: 16% (2021: 14%) Climate Change: 16% (2021: 13%) – Agriculture sector: 45% Interest rate: 13% Political change (social unrest/violent protests): 12% (2021: 10%) – Transport sector: 24%. The report explains that the challenging economic climate over the past two years has impacted almost all corporate and commercial entities. Key impacts have been reduced profits, lower business turnover and increased input costs. The rising fuel price has impacted 90% of businesses stifling profitability, with companies in the transport and aviation sectors hardest hit. In response to the economic climate, Santam says that corporate and commercial entities have reduced their expenditure on business costs over the past 12 months, including: 25% cut salaries/wages (fewer staff or salary freeze) 21% reduced transport/fuel costs 13% reduced domestic travel 13% reduced debt repayments 11% reduced expenditure on vehicles (sold/gave up lease) 10% reduced international travel 7% reduced expenditure on employee benefits (pension, life, disability, medical aid) 6% reduced expenditure on commercial property/rent payments 4% reduced expenditure on warehousing 2% reduced expenditure on short-term insurance policies.

South Africa facing ‘momentous shift in risk landscape’

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