What’s keeping brokers awake at night?
Working together as brokers, insurers, and clients has become inevitable as we strive towards a more sustainable industry that is part of a solution and not the only solution. Here, we take a more in-depth look at how brokers can support the insurance industry and insurers can support brokers.
I recently had the opportunity to speak on behalf of the FIA at a special event marking the tenth anniversary of the Allianz Client Academy.
It was an honour to be part of the milestone occasion. Insurance plays an important role in protecting the economy and the lives of ordinary people and I was eager to learn more about the gaps in our service to risk managers and how brokers can better support them.
Reflecting on what would be most relevant to those gathered, I settled on three key areas, which I will share here.
Role of trade associations in financial services
At a sectoral level, there are four trade associations in financial services, and each represents a specific market segment – BASA (Banks), ASISA (Life Insurers & Asset Managers), SAIA (short term insurers), and FIA (intermediaries). Collectively we are the biggest contributors to GDP in South Africa.
The Financial Intermediaries Association (FIA) is a non-profit entity championing the interests of more than 1 700 brokers (from SMMEs to corporates). FIA members are independent and multi disciplined, so they work across healthcare, financial planning, short-term, investments, and employee benefits.
There are many things keeping brokers awake at night. Here are three major concerns:
- Local insurers’ capacity for risk and ability to take on new risk has declined and become more expensive.
- The imposition of restrictions and subjectivities to cover any amendments to existing contract wordings by insurers and reinsurers (such as grid failure exclusions), has led to a great deal of contract uncertainty and this of course makes the role of the broker and risk managers far more complex.
- Insurers are expecting clients to invest in risk management measures, skills and expertise while limiting cover and increasing premiums.
On a positive note, all trade associations in the sector are also members of Business Unity South Africa (BUSA). The role of business through BUSA has been elevated substantially within government to address three key projects, each of which plays a pivotal role in enabling economic growth.
Energy: to enable and deliver the energy action plan to end load shedding and transform the energy sector.
Transport and logistics: to stabilise and improve operational performance of strategic transport and logistics corridors.
Crime and corruption: to reduce relevant crime and protect economic infrastructure.
These different workstreams are managed by business. In parallel, employment research is being conducted to develop a common baseline for government and business to advance cooperation on the jobs agenda. In the future, additional focus areas such as water and infrastructure may be brought in. This is critical for us as an industry because of the impact poor infrastructure has on the cost of claims and business continuity.
BUSA provides us with a detailed update on these three key projects on a bi-monthly basis. While things are certainly looking better, the question remains whether these projects will be sustained once government takes over again. At present, business has assigned over 250 professionals to mobilise the work required for these projects. The common messages are:
- Government and business are working together in the national interest
- South Africa can unlock significant growth potential by taking action in these areas
- The partnership is focused on action and results, not talk This should encourage you to see trade associations like ours contributing to these initiatives.
What is on the international agenda
We recently came back from the World Federation of Insurance Intermediaries conference in Mexico City. There we met with both the IAIS (International Association of Insurance Supervisors) and the OECD to discuss what is on their agenda for the next two to three years and there was a common trend with both supervisors and governments. Five key topics emerged:
- Protection Gaps
- Swiss Re estimates that only 13% of all natural catastrophe risks were insured, and hence the IAIS is “seized” with the need for action. The historical focus has predominantly been policyholder protection.
- The IAIS has put out a call to action regarding the role supervisors can play to address natural catastrophe protection gaps. Of specific importance is the effort to incentivise risk mitigation. In this regard, the role of brokers and risk managers is key.
- Climate Change
- The insurance sector is impacted on both the asset and liability sides.
- An article by the CEO at Sanlam Investments on sustainable investment notes, “by 2050, we will need three earths to sustain our current standard of living. This is based on the Global Footprint Network’s research that shows humanity consumes natural resources 1.75 times faster than our planet can replenish them”. 2024 must be a year of shared decisive action!
- Looking at the World Economic Forum Global Risks Report, 5 of the top 10 risks in the next 10 years are related to environmental:
- Extreme weather events
- Critical change to earth systems
- Biodiversity loss and ecosystem collapse
- Natural resource shortages
- Pollution
This year we are likely to see a significant increase in company investments contributing to combating biodiversity loss. The World Economic Forum says over half the global economy, which is valued at 44 trillion dollars, is dependent on nature.
- Dr Chris van Straten recently wrote that “creating resilience will require businesses to have access to reliable hazard monitoring tools and processes, and robust risk reduction and response mechanisms (such as insurance), to identify and mitigate climate-related crises. Organisations that have and invest in risk management systems, will prove to be more resilient in the future.”
- Regulators will be focusing on conduct risks, including greenwashing.
- Financial Inclusion
- We know insurance is key to financial health and resilience.
- The IAIS recognises the important role of brokers with respect to increasing access and reaching consumers.
- There is a focus on increasing distribution channels as well as finding more cost-effective distribution channels.
- Diversity, Equity & Inclusion (DEI)
- The IAIS published a statement affirming that advancing DEI in insurance supports consumer outcomes and sustainability objectives.
- They are talking about how DEI can influence governance, management and corporate culture and incudes mechanisms that supervisors should look at as well as actions that supervisors can take.
- A further paper on DEI will be issued covering how fair treatment by insurers and intermediaries can be implemented to ensure fairer outcomes (such as representation, cultural competence, elimination of bias, and building trust and confidence).
- Technological Innovation
- Artificial Intelligence (AI) is top of mind, and work is underway to develop an understanding of AI use cases as foreseen by insurers and intermediaries.
- Consideration is being given to both the opportunities and the prudential and market conduct risks that could arise. In the construction industry, for example, the Gap Infrastructure Corporation – a South African infrastructure development company – says there is widespread adoption of AI for risk management activities.
The role of corporate brokers in SA
Brokers play a pivotal role, serving as trusted partners in navigating the complexities of the insurance world.
I loved this analogy which was used by a member:
Brokers act as conductors, orchestrating the various elements of risk information, management, and finance to ensure optimal outcomes for their clients, particularly in the event of a claim. While they may not all be experts in every facet of risk, their ability to engage with all relevant parties and coordinate efforts is indispensable.
Furthermore, it’s essential that brokers possess a deep understanding of both the products they offer and the sectors in which you operate. Their expertise in interpreting policies, coupled with their market knowledge, enables them to identify and assess risks effectively. Moreover, their experience in business equips them with the foresight to anticipate future challenges and proactively mitigate them.
One key recommendation from the intellectual leadership of brokers is the regular reassessment of risk, starting from zero base every few years, in order that the exponential changes across a broad spectrum of risks over time are factored into the design and structure of one’s insurance programmes. Additionally, they advocate for conducting thorough risk surveys and probable and possible loss scenarios to supplement existing coverage, emphasising that relying solely on traditional insurance may no longer suffice.
When it comes to claims management, the efficiency and effectiveness with which brokers handle complex claims can have a direct impact on an insurer’s business. It’s imperative that they demonstrate their skills and expertise in this regard, ensuring that claims are resolved swiftly and seamlessly.
Having this opportunity to speak about our industry reminded me once again of the invaluable role that brokers play in safeguarding businesses and bolstering the economy. Brokers stimulate competition in the marketplace to drive product innovation and are job creators. I have so much admiration for what our members do in very uncertain times and I feel privileged to support you through the work we do as the FIA. By staying vigilant, adaptable, and united in our mission, I have no doubt we can navigate the evolving risk landscape with confidence.
Kind regards,
Lizelle van der Merwe, CEO
