The South African insurance industry doesn’t exist in a vacuum. It’s affected by everything from global conflicts to natural disasters, political shifts that haven’t been seen since 1994, tech advances, and more. So, how do insurers navigate an increasingly complex landscape to stay competitive and deliver on customer experience?
The global landscape is ever-evolving, and the insurance industry needs to keep up with the pace of change. The industry is perpetually influenced by everything from socio-economic shifts and technological advancements, to environmental changes and political upheavals at home and abroad.
Managing the resultant volatility with agility and foresight is a must in remaining relevant and sustainable. How does the industry navigate this brave, yet uncertain, new world? What’s the big picture?
Geopolitical events – such as the ongoing wars in Ukraine and the Middle East – have direct and indirect consequences for the insurance industry. For example, there’s been a marked increase in the cost of imported car parts due to the deliberate blocking of key shipping routes in the Red Sea, resulting in higher freight rates. Then, the Ukraine war and related sanctions have hiked prices of raw materials used in auto parts (Russia is a major supplier of raw materials needed in auto parts, like palladium and neon gas).
Another macro factor that has a major impact on insurers is climate change. Last year (2023) was the hottest year on record, and earthquakes, fires and storms resulted in 74 000 deaths globally and untold property damage – along with knock-on premium increases and outright exclusions.
Tech advances are also a major industry-shaper. Artificial Intelligence, Machine Learning and Blockchain are transforming traditional insurance models by enabling more accurate risk assessment and better customer service. InsurTech start-ups are also causing disruption through innovation tailored to digital clients.
What impacts do South Africa’s insurers face?
Climate change is also impacting South African insurers, which can further impact reinsurance cover, policy conditions and premium rates. Recent events such as the KZN tornado, Cape Town floods and Gauteng hailstorms show a rise in climate-related events and bear testament to the wide-scale losses faced by clients and insurers.
Not only that, but insurers are also impacted by loadshedding, which has resulted in an increase in power surge claims. This has led to some insurers implementing grid-collapse exclusions in their underwriting terms.
The South African insurance industry must also contend with external factors like rising inflation, high interest rates, slow GDP growth and an official unemployment rate of 32.9%. These factors compound to create a challenging environment, where consumers can only focus on the necessities and insurers tighten terms and make appropriate changes, such as premium adjustments, to remain solvent and continue meeting client needs.
“While many factors are out of our control, as insurers, we can remain competitive despite the challenging environment,” says Discovery Insure CEO Robert Attwell. “For example, at Discovery Insure, constant innovation to improve client experience remains a number-one priority, no matter what’s happening in the country or the world at large.”
Local political shifts incoming – with a dose of optimism
This year’s elections on 29 May 2024 marked a 30-year milestone in our democracy. The results at the polls caused a massive shift in the political landscape – one that will impact the insurance industry in many ways. At the time of writing, the new government is yet to be formed, but political uncertainty creates economic and policy uncertainty, which impacts every industry.
“However, there is much to be optimistic about,” adds Attwell. “In February 2024, National Treasury forecast that GDP growth will reach 1.6% in 2025, contrasting with the International Monetary Fund that only expects 1.3%. And, according to the South African Reserve Bank, annual average inflation is expected to drop from 5.1% in 2024 to 4.6% in 2025, and 4.5% in 2026.”
Attwell suggests the operating environment may further improve if the new government, whatever its configuration may be, pushes through with the right reforms. For example, the recently passed Electricity Regulation Amendment Bill and Operation Vulindlela, the latter seeking to address long standing issues within the rail, ports, water and electricity sectors.
How are insurers responding to AI-led disruption?
Add another external factor to the mix. Much has been written about the power of Artificial Intelligence (AI) to make our lives easier, and insurers, along with consumers, can take advantage of this.
“We are utilising AI to enhance client self-service, reduce costs, streamline processes and increase customer satisfaction,” says Attwell. “We’ve also been using an AI-powered chatbot, our Discovery Virtual Agent, since 2017, to help clients get answers to questions quickly and easily, without needing to phone the call centre. It’s been very successful; we average nearly 5 000 queries a day.”
In April 2020, Discovery Insure introduced an Ask Discovery WhatsApp service bot, so clients can ask a question about their insurance plans or request specific documentation that is immediately sent to them. In addition, Discovery’s Auto Claims service allows clients to have their claims for geysers, vehicle glass, cell phones and portable electronic equipment approved instantly.
AI isn’t only about automation – it can be a force for good
Discovery Insure isn’t just using AI for efficiency. The insurer’s Pothole Patrol, an initiative that helps identify and repair potholes on major Johannesburg roads, in partnership with Avis Southern Africa, the Johannesburg Roads Agency (JRA) and the City of Johannesburg, is also leveraging this technology with great success.
The Pothole Patrol has fixed over 210 000 potholes since its inception in 2021, and its first year alone resulted in a 26% decrease in pothole-related claims. The Pothole Patrol fleet uses advanced AI and camera technology to scan the road to identify potholes and cracks in real-time as the vehicle drives, and the tech also measures and categorises other road defects like faded paint. This provides the team with invaluable information, so they can easily prioritise where and what to repair.
Embrace change, foster resilience, and prioritise innovation
“Yes, the South African insurance industry faces a multitude of challenges and pressures. It’s how we adapt and innovate that takes the industry forward,” says Attwell. “By responding proactively to the turbulence, insurers can navigate uncertainty to continue to provide value to their clients, even generating more sustainable business models in the process.”