Thusang Mahlangu, CEO, Allianz Global Corporate & Specialty (AGCS) South Africa shares thoughts on the opportunities and challenges for insurers and brokers on the continent.
Tony – We are talking a bit about hindsight as to how 2021 went and looking a bit into the future for 2022 to get some of your thoughts on the environment. We’ve had some economic recovery, which varies across the continent which you operate on. What was your overall experience of the year?
Thusang – When compared to 2020, it was a better year, in terms of economic recovery, and as you know, in South Africa, the GDP contracted by almost 7% during lockdown. Now we are coming out of that sluggish year, and we’ve seen a positive shift, but it has been hampered. It has been hampered by the riots and looting that happened last year. That caused a negative impact in terms of the outlook, and for 2022. As we are all aware, several businesses were impacted, we are looking at about R50 billion impact on the economy. That would also have had an impact on how attractive we are for foreign direct investments being made, but we are still seeing some positive signs following the COP 26 and our shift to the much-needed renewable energy projects.
Funding of about $8.5 billion was made available from COP 26. So, I would say that there is a positive outlook, but one is cautiously optimistic. We expect the growth rate to be slightly lower than 2021. But, in the region itself, I would say that it’s promising for countries as we see quite significant growth. According the IMF, East Africa and Kenya, will be around the 5% mark, we know that Ghana will be around the 5% mark. Nigeria is a bit slower than that, around the 2% mark the IMF has given. You can see there’s a varied growth pattern across the continent, depending on each country, some improvement in certain countries and slowdown in other countries.
Tony – A lot of your business is as sophisticated business, big business, energy, oil and gas, big corporates, all of those sorts of things. So, you must rely a lot on brokers and broker advice, managing the risks on the ground. How’s this broker fraternity responded to the challenges and, from your perspective and your learnings across the region, what sort of recommendations do you have for them going forward?
Thusang – I think what the lockdown has taught us is that relationships are very important in our business and working with Zoom, MS teams and WebEx, limits that interaction. Our business is a people’s business, to be in front of clients and customers and looking for solutions. I think the pandemic has hampered innovation, discussing and exploring ideas with clients on a face-to-face basis. I think as we are opening up now, with more people getting vaccinated – even though I know the percentage is quite low in Africa with almost 10% vaccinated and globally averaging almost 50% – we need to get creative in terms of the structures for clients or solutions for clients.
For example, clients are looking for innovative ways how they can restructure their policies. There are certain lines of business where you’ve seen a shortage of capacity and increasing rates, and I think a lot of clients are looking for brokers to come up with alternative structures. For example, virtual captives, and alternative risk transfer solutions. I think that is where brokers will need to assist clients, and where clients can retain more risk, at the same time using the conventional market to insure potentially large unexpected exposures. So, I think that’s the area that I would say brokers could work on.
Tony – In terms of business lines, segments of the industry, where do you think the opportunity is going to come from for the insurance industry?
Thusang – Cyber is an opportunity and a threat to the industry. The Marsh survey indicated that the cyber market would quadruple to about $20 billion in the next three to five years. Now, cyber insurance penetration is very low. Not a lot of companies buy cyber, and if they do buy cyber, they don’t buy enough limit. We have seen that hackers have taken advantage of the lockdown. We have seen it in both the severity and frequency, especially the more frequent ransomware attacks. As a result, the premiums that come in over the years for cyber is not enough to meet the claims that have been coming through.
Therefore, we have seen markets that have reduced the capacity and increased the premiums. We’ve seen premiums almost double in this period. The question is, how much more premium do we need to get for the exposures that we take on as an industry. So Cyber is one of the growth areas, I would also say – renewable energy. That’s obvious, as markets are now sensitive to climate change and global warming, and a lot of industries are pivoting to green energy, so, there’s a lot of potential for wind, solar, hydro, across the continent, and across the globe. That will be one area where, especially in Africa as we rely heavily on coal, we need to begin shifting to clean energy. Therefore, renewable energy is one of those growth prospects or growth opportunities we see.
Tony – In closing, from a business perspective, but maybe a little bit personal as well, has the past two years made any difference to how you look at business, in general, as well as a business strategy?
Thusang – I think, what’s key, are two things. One is the issue of business resilience and business continuity planning; the lockdown has shown us that this should be at the heart of your business. And as a result, ESG matters are also topical issues on that. The newer ways of working, that’s also critical including employee wellbeing, making sure that the staff can perform their role, whether in the office or at home. As a result, at AGCS we have introduced flexible working hours and a hybrid working model, which allow our staff to be able to choose when and where to work.
We must have a proper work life balance and be conscious about mental health which is topical at the moment. Lockdowns have had a negative impact on mental health. We have lost colleagues, family members and friends, many are still trying to heal. As a result, we need companies to be sensitive about their employees’ mental health. For example, we gave all our staff a day off to focus on their mental health and themselves, so that they can be more energized when they come back to the office.