Insurers have traditionally relied on historical trends to underwrite risks and in order to price products.
From the war in Ukraine to tensions in the Middle East, global conflicts and economic uncertainties are disrupting societies, economies and politics, and the ripple effects of these events are felt in the insurance industry.
Natural disasters are also growing in frequency and severity due to climate change, and in response to these challenges, the South African insurance industry faces compounding hurdles that demand adaptability and innovation.
“Insurance operates on the principle of predictability, but the increasing unpredictability of global events has disrupted traditional underwriting practices,” said Mark Sanders, COO at GIB.
“The sector must adopt new approaches to ensure sustainability and remain prepared for the unknown.”
Insurers have traditionally relied on historical trends to underwrite risks and in order to price products.
However, with natural disasters intensifying and new geopolitical risks emerging, underwriters are forced to adopt a more cautious stance.
This results in higher premiums, stricter coverage terms and a greater emphasis on geographic modelling to manage exposure effectively.
Jonathan Lindeque, Head of Agriculture and Manufacturing at GIB, highlighted an important shift in this regard.
“Reinsurers have historically viewed South Africa as a predominantly fire-risk area. Now, however, natural disasters, such as the devastating floods in KwaZulu-Natal that cost the country upwards of R25 billion in infrastructure, are seen as the primary risk. This evolution demands a more dynamic response to underwriting.”
Political unrest in Mozambique, where violent protests following the recent national elections have led to significant disruptions.
“In the case of Mozambique, we have now seen marine and terrorism and political violence insurers imposing stricter and more onerous conditions. Some local marine insurers have now excluded cover to and from Mozambique as they deem losses in that area as a certainty rather than a possibility,” Lindeque said.
The role of ESG in insurance
Environmental, Social, and Governance (ESG) principles are becoming central to global insurance practices. Many insurers now require clients to demonstrate active ESG strategies before assuming their risks, a trend that is particularly relevant as businesses transition to greener technologies, such as solar energy.
“In South Africa, the surge in solar installations has created new challenges,” explains Lindeque. “While solar reduces energy dependency, it introduces risks like fire or equipment failure, compelling insurers to implement stricter underwriting standards and minimum risk requirements.”
Beyond renewable energy, ESG considerations have also become relevant in other sectors, like agriculture. Farmers in regions like the Western Cape for instance have faced increasingly severe droughts, compelling insurers to develop innovative weather-based insurance products that may rely on satellite data to trigger payouts.
Yet, despite these challenges, a positive trend is emerging where consumers and businesses are paying closer attention to the details of their insurance policies.
The industry mantra, “Don’t underwrite at claims stage,” rings truer than ever, underscoring the importance of proactive risk assessment instead of checking what is covered only when a loss occurs, so that your business can mitigate risks and fully understand what additional cover it might need.
According to Sanders, “More clients are now engaging with their policies and actively mitigating risks. This shift is critical as the focus moves away from relying solely on insurance policies to implementing internal risk management measures.”
Preparing for the future
The South African insurance sector must remain vigilant as it anticipates future challenges. Climate change, geopolitical tensions, and economic instability will continue to drive demand for innovative insurance solutions. Insurers, brokers and clients must collaborate and adapt, ensuring risks are not only transferred but also effectively managed.
“Our role is not just to provide coverage but to partner with our clients in navigating this complex landscape. A proactive approach positions the industry to weather ongoing challenges while supporting South African businesses and individuals in better mitigating risks,” concludes Sanders.
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