By Tiaan Erasmus, Regional Head Coastal (WC & KZN) at iTOO special risks
Liability insurance is often misunderstood or perceived as being complex, yet it is not. Historically, liability insurance used to be low on the list of coverage in South Africa, but the landscape for clients, intermediaries and insurers has changed significantly over the last 15 years.
While the buyers of comprehensive liability products used to be almost exclusively large corporations, these insurance policies are now freely available to all companies and even SMMEs. At the same time, the size and frequency of liability claims are increasing, and companies focus much more on this segment of insurance.
Several factors have driven this change. Firstly, amendments to legislation prompted a change in buying habits and product development. For example, the Companies Act of 2008 extended the powers and remedies available to shareholders and stakeholders in bringing liability claims against the directors of a company. This drove demand for directors’ and officers’ liability insurance.
Secondly, the Consumer Protection Act, which came into effect in 2011, created uncertainties for businesses as it entrenched and advanced the rights and remedies of consumers concerning the marketing, promotion, distribution, supply and the sale of goods and services.
Thirdly, South Africans are still catching up with the requirements of a law that came into effect more than 10 years ago. The Safety at Sports and Recreational Events Act 2 of 2010 applies not only to professional event organisers but to any person or organisation in charge of a significant party or gathering.
Furthermore, revised regulations ushered in more professional intermediated services, with intermediaries playing a vital role in advising clients on liability risks. This resulted in a clear transition from insurance agent to risk professional, as intermediaries had to adapt to change and competition from direct insurers. Pricing was no longer the only value proposition and clients expected intermediaries to have all the relevant solutions.
We have also seen an increase in free avenues of redress. Increasingly, financial service providers subscribe to the various Ombudsman services, enabling clients to find redress without exposing themselves to expensive litigation. This has created an interdependence between managing client expectations and risk, with expectations often being that the insurer should bear all liability risks.
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In the early 2000s, opportunities arose for South African businesses to export products and expertise to other parts of the world. This meant increased risk and reward for local companies and insurers eager to expand their risks and portfolios.
During the period of deflation in liability premiums that followed, the market witnessed an oversupply in capacity and organisations could easily purchase up to R1 billion in liability coverage from one or more insurers. However, the claims environment changed after a few years, with liability insurers often having to defend complex claims in foreign jurisdictions at huge expense.
In the current market, not only do liability insurers have to deal with the effects of pro-consumer legislation that result in costs and awards often being ruled in favour of the plaintiff, but they also have to contend with the issue of “social inflation” – a term that describes how insurers’ costs continue to increase over and above general inflation as growing litigation costs continue to multiply.
All of these factors have raised the appetite for liability cover among local companies that increasingly recognise the importance of investing in customised, affordable products that provide liability cover for small and medium businesses.
Ultimately, liability insurance cover should be seen as a form of balance sheet protection that allows organisations to focus on their core activities, which should not include having to manage complex and time-consuming litigation. That should be left to the experts.