The most recent three local catastrophes – Covid-19, riots and KZN floods – and one or two more hovering overhead, have had the effect of a dramatic redrawing of the boundaries in the international reinsurance markets. This is in turn driving the changes in our local markets affecting not only capacity but pricing and appetite. For the more seasoned campaigners in the industry, it’s almost a return to the markets of the late 1980s and 1990s before the market started softening considerably for a decade or two thereafter.
The markets before
As our markets developed over time, and particularly the progression from the specified peril policies of the past to the broad-based asset all risks or so-called broad form covers, some interesting things manifested themselves. Unwittingly in some cases and alas becoming more blurred with the passage of time, the so-called broad based unspecified perils, covers and automatic extensions to cover led to advisors (and product providers) neglecting to pay attention to the client and or industry-specific aspects of these extensions and automatic covers. As time went on without any major or significant incidents, the more innocuous these ‘bells and whistles’ “tended to be… Until the said catastrophes arrived – then we all went scurrying around for magnifying glasses, legal opinions and the like.
Where we are now
We have now seen the results of these being the outright broad based removal of a number of these contentious covers such as no-damage business interruption, public utilities extensions becoming limited, SASRIA covers becoming limited to the R500m limit, some prices on SASRIA increasing in the thousands of percent margins to insurers reducing capacities and/or increasing pricing.
Outside of advice pertaining to contagious diseases, advisors are still faced with the responsibility of advising on these risks which are no longer capable of being insured in the traditional ways of the past. And, if they are trying to justify them, then tenfold or hundred-fold pricing increases for potential exposures the particular client may not have held to be crucial or that important in the past.
Where does this leave the non-life advisor?
It is clear that any insurance advisor worth their salt should have an in-depth understanding of what constitutes risk, how risk should be identified, evaluated and treated, and how these identified and evaluated risks pertain to a particular client in a particular sector. Additionally, the structuring of insurance covers and self-insurance mechanisms together with alternative risk financing mechanisms come to the fore. Risk prioritisation is required; whereby those risks which create business threatening exposures are dealt with first, then those risks which have a short-to-medium term impact on the operations of the business and finally those risks which should be managed and financed by the business itself. This process of risk identification and evaluation is crucial. If potentially catastrophic risk exposures are not correctly identified, the consequences on a particular organization can be disastrous.
Remember the details
Finally, out of lessons learned from these three most recent events, it is clear that in some cases the fundamentals of the correct structuring and calculations of sums insured, indemnity periods and specific extensions to cover, were found wanting. Insurance is a details business – ignore the details at one’s peril!
It is when these major claims occur that the quality and value of the advisor and insurer partners is put to the test – the occurrence of the event is not the time to be finding out that the solutions and partners in place are not up to the task.
It is then quite clear what the professional risk and insurance advisor of the present and future needs to do to equip themselves to be of more value to their clients. In the case of the selection of insurer providers it is clear that it is better to be having the detailed discussions and arguments before the cover is finally placed than having them when the claim has occurred. This means the quality of brokering information going to the market in all of its facets will need to go up a gear or two – in some instances many gears – but the end result will be a happier triumvirate of client, advisor and insurer(s).
Peter Olyott is the CEO of Indwe and a seasoned risk and insurance advisor having serviced and advised major clients across a broad spectrum of industry sectors. He has been personally involved in the successful settlement of some very large claims across insurance types from Fire and Allied Perils, Business Interruption, Commercial Crime, Engineering, Construction and Marine and Legal Liability claims. He is a passionate supporter of the value of risk management in any organisation, small or large, and also that the involvement in claims provides much food for thought when advising clients thereafter.