Wilma van der Walt, Executive for Customer Experience and Operations at PPS Short-Term Insurance
The impact of COVID-19 and cyber security attacks were expected to be among major concerns for the short-term insurance industry in 2022. However, the shortage of professional adjustors for commercial properties, the rapid adverse developments over the past six months – such as the war in Eastern Europe – the twin problem of rising inflation and interest rates, and the heightened effects of climate change are some of the key trends expected to shape the short-term insurance industry in the months ahead.
Undoubtedly, insurance companies and individual policyholders are likely to bear the brunt of these adverse factors.
Inflationary pressure
Consumer inflation – the measure of the pricing of goods and services – for May raced to 6.5%, becoming the highest level in five years. According to the International Monetary Fund, South Africa’s inflationary pressure is expected to continue through to 2024. This will impact the replacement of insured items such as vehicle parts and construction materials for buildings. While the industry has implemented measures to cope with rising inflation, the consequence may be an unavoidable increase in premiums. Inflation adds pressure to the tight profit margins of most insurers as they do not want to price themselves out of the market.
Customer-centric approach
With the ever-changing technological advancements, clients are rightfully expecting insurers to continually improve their service levels. Clients want their claims to be settled speedily, and transparently and to be kept in the loop about the progress of their claims.
Also, because of various tech improvements, the digitisation of services means that new smaller insurers can enter the market due to lower barriers to entry. We can, therefore, expect that in the coming months – as clients feel the squeeze of the ever-rising cost of living – insurers will come under pressure to secure new clients.
It is, therefore, important for insurers to be agile and flexible in their offering. A priority should be to continually innovate according to the evolving clients’ needs by developing user-friendly, efficient and customer-centric offerings that enhance their time-intensive lives.
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Climate change
The recent heavy rains across the country and the flooding in KwaZulu-Natal confirm that climate change will play an increasingly prominent role in weather-related damages in the insurance industry.
This is especially true for property owners. Property buyers and insurers must consider the varying exposure perils of insurance. Historical weather patterns for a specific area come into consideration, along with property size and age classification. Other elements to be considered include distance measures from rivers, lakes, sea, forests and farms, regular breakaway wildfires and seismic activity.
It, therefore, goes without saying that everyone should actively seek to mitigate the risk that global warming poses to the quantum and severity of short-term insurance claims. Failure to do our part will cause recurring increases in insurance premiums.
Shortage of professional adjusters
In addition, commercial property insurers are facing a severe shortage of professional adjusters. When dealing with commercial property, there are loss adjusters and damage adjusters. Loss adjusters are responsible for quantifying the loss and applying the policy terms and conditions to determine if there is cover or not, while damage adjusters inspect property damage to determine how much the insurance company should pay for the repairs or replacement.
Industry experts within the commercial property insurance sector predict a severe global shortage of professional adjusters in the future, as many have retired or are about to retire. Most adjustment professionals are older than 55, and insurers have struggled to recruit millennials, leaving a considerable experience gap within the commercial property insurance industry.
In conclusion, the next 18 to 24 months will prove challenging for consumers. There is no end in sight for the Russian-Ukraine war, increasing the risk of higher fuel and food prices. It is a risk that requires careful consideration by insurers and policyholders as they traverse the period of elevated uncertainty.