In a year of contrasts, brighter days lie ahead

Wayne Abraham, MD, AIG Sub-Saharan Africa

Business conditions have been unusual since COVID first struck in late 2019. While the brunt of dramatic change was faced through 2020, the past year has delivered a mixed bag of negatives and positives. However, the harsh truth is the positives are somewhat few and far between however brighter days lie ahead.

The largest impact on the insurance sector is the lasting effect of losses directly related to COVID. The industry was not initially expected to bear these losses, but legal interpretation meant it had to. The effect of a wider interpretation of what was intended with a local event has meant that this cover has been completely excluded going forward to mitigate further losses from all Property policies. The unfortunate result of this is that this cover is sorely needed – for example, if a retailer must close shop and decontaminate after an infectious person has visited, they now would unlikely find cover for this eventuality.

That’s just one part of how insurers have seen difficult times. While 2020 still saw some growth, there has been very little through this year. In fact, some segments have gone backward, with others showing marginal increases only because of rate increases. Precious little organic growth through this year is a concern going forward, although there are expectations of some green shoots for 2022.

Working from home has proven a major win. Not only has it demonstrated the South African propensity for ‘just getting on with things, but it has dispelled any fears managers may have had over productivity concerns. People have shown they can and do keep things moving even in extenuating circumstances. Flexi-arrangements have worked well for most companies including AIG, where we still have a mixed rotation workforce. Getting back to the office has been well received, particularly by those with challenging work from home environments – including parents of small children, and those susceptible to load shedding. The pendulum which swung decisively towards work from home will likely move hard in the other direction, before a balance sets in.

However, along with that is the rise of cybercrime; working from home didn’t create cyber risks but there is a need for employees to be cautious of potential cyberattacks. Boundaries have shifted, and no doubt, with more time on their hands through the pandemic, bad actors have stepped up their activities.

As a result, there has been an increase in loss trends locally and globally, which is a worry. Customers are well advised to get cyber cover, but with the increased losses expect rates to harden through 2022 not only in cyber, but also other areas of corporate insurance and specialty segments including Financial Lines, Liabilities, and Corporate Property.

As for SME and consumer lines, this year saw reducing appetite for insurance, so the market is expected to be soft at least initially in 2022, though insurers will push to regain customers throughout the year. This means while there may be inflationary premium increases, anything beyond that is unlikely.

The industry is resilient and sustainable, but with low economic growth expected, there will be some industry specific challenges. Consolidations and mergers can be expected at both the insurer and broker level, with this being more of a reality with smaller and independent companies. This is due to the insurance industry being dependent on scale and volume along with the correct pricing which is both attractive to the customer yet profitable to the provider.

A final note on talent. Finding and retaining good people is and remains a significant topic for all insurers. Insurance is a crucial industry and even a barometer for the economy: when things go well, people can afford and easily see the value in insurance. When economic conditions deteriorate, the value proposition doesn’t change, but perceptions of it do. Good and skilled people are crucial in providing affordable insurance which delivers the protection customers need.

These are undoubtedly tough times on a global basis and more acutely for South Africans given the additional challenges we face. However, South Africans have proved themselves to be resilient and will see through the tough times. While marginal economic growth is likely next year, it should put us on track for future growth.

As for AIG, we will continue differentiating ourselves as the insurer of choice by working with our valued brokers and business partners to provide a comprehensive product range, and technical expertise while listening to our clients and responding to their needs.