Opinion by Warwick Goldie, Chief Underwriting Officer at ITOO
The South African liability and specialist risk market has been through an extended hard market cycle. This is however starting to plateau off and although we are not seeing the large annual increases of +20% – 30%, increases are still being obtained on a risk-by-risk basis further enhanced by individual claims loss history. On large complex accounts, more detailed underwriting processes are being adhered to with very limited deviations from best practice underwriting stances. Furthermore, on larger complex and capacity driven accounts, the market continues to support the general approach to proportional and excess layer placements on these accounts. It has been a slow progression for the market to accept this approach in our market, this has been a good move in general and we do not foresee this changing anytime soon in 2024. Capacity management remains paramount and gone are the days where underwriters were prepared to write accounts 100%. A prudent continued approach in this regard is required to bring measured stability to our underwriting results.
The cost of reinsurance remains an interesting topic of debate. Reinsurers in general have not experienced a good run or results in South Africa over the past couple of years. The result thereof is that their pricing and reinsurance structures have tightened up resulting in cedents having to take more for their own nett account, and accept lower ceding commissions or lower profit commissions. On non-proportional placements attachment points are higher and the actual cost of the reinsurance purchased is up by more than 10% annually. These costs cannot continuously be absorbed by Insurers and need to be passed onto the ultimate purchasers of the insurance.
The above trends will continue, herewith some interesting thoughts and comments as to what to think about and consider for 2024.
If stealing was an Olympic sport, we in South Africa would be gold medal winners all the time. It is a real concern for us as to the level of crime that is witnessed. Commercial Crime should be deductible driven and be take out for those large cat losses that a companies balance sheet cannot absorb. To ensure that this class of insurance has a sustainable future in South Africa, the market must work with insurers to set the correct level of deductibles plus increase their focus on risk management. We at iTOO are committed to providing our clients with pre-risk surveys, whereby we physically survey exposures, draft recommendations and assist them with implementing the corrective actions to try to assist them in creating a more risk-free environment.
Inflation and cost of claims:
We have all lived and worked in an inflationary environment. We are however seeing continued pressure from inflation on how it impacts claims. On long tail liability exposures e.g. Medical Malpractice the consideration is to how to provide now for further ongoing medical care, home care and future medical bills. A claim now which may only be settled in 5-10 years’ time may increase 3x fold over that period only because of what it will cost to provide such medical care later in the decade.
Further pressure on costs comes from the way we litigate. With our slow judicial system, matters may only be brought to trial several years down the line. Keeping a matter alive with regular legal representation updates, annual inflation drives up the cost on a matter that could have been cheap and simple to defend into a very expensive process.
This has been and will continue to be one of the fastest growing classes of insurance not only in SA but also globally. As a prudent business owner, this is a class of insurance that should be on the top 3 of your purchases. In today’s business environment when we are so connected, any downtime can / could destroy a business. Taking a brief look through, there are daily breaches of systems on a global basis and just because we are at the foot of Africa, does not make us immune from such attacks. Cyber insurance will cover both your first party as well as third party liability exposures. Knowing you have a policy in place where experts can be deployed in the event of a breach should give every business owner peace of mind.
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The challenge we are seeing in the PI space, specifically in the built environment is the reducing lack of skills coupled with the increase in shortcuts being taken. The reduced skills sets is a direct correlation to the lack or work and an environment where there is very little capital expenditure, government spend and investment. Given the lack of projects and opportunities companies are closing and those individuals that had the skills are slowly moving out of the profession. The result thereof is individuals with insufficient skills are being tasked with projects and decisions that they are not suitably qualified for. With the reduced work and tough economic times, there is increased pressure on costs to generate profits. Shortcuts are being taken to get the projects done quicker and within budget, lack of qualified supervision and a general lowering of standards, these all increase the risks and exposures to PI underwriters.
A discussion point of note relating to PI, is the impact of AI. To what extent will AI and related sites such as ChatGPT impact PI exposures. It is a concern that professionals may start to reply more and more on such AI sites to assist them in their work. This cannot be ignored. From an underwriting perspective our concern is whether there is still sufficient oversight of whatever is churned out from the sites. We would expect professions/professionals to use AI to support their work but not be the sole reliance on it. These professions will still have the responsibility to check the work that AI has done. The responsibility still lies with the professional to ensure the quality and accuracy of any material so generated.
South Africa was recently grey listed. Although this does not impact the actual covers or products we offer, there is a general need and requirement for all businesses to re-look at our governance and oversight with regards to taking on clients. As an Underwriting Manager in the short-term insurance industry, we are not defined as an accountable institution. Despite this we believe we have a responsibility to make sure we comply with all legislation, part of which is increasing our awareness to white collar crime.
South Africa is facing challenges when it comes to not only electricity supply but also potential water supply. We have had robust discussions as to the potential exposures to our liability products and the consequences of this as to claims impact. Unlike the property/assets market where they have placed varying levels of exclusionary language onto their policies relating to this exposure, the Liability and Casualty classes have dabbled in these exclusions, and we do foresee this changing in 2024 with tighter exclusionary language being brought into the original policy wordings.
In 2024, we must genuinely prioritise and focus on skills development, whether in claims, sales, underwriting, governance, compliance, or finance. As a prominent player in the financial services sector, it is imperative that we consistently enhance our skills. At ITOO, we are dedicated not only to nurturing our own team through education bursaries for themselves and their immediate family members but also to fostering graduate and learnership programs.