Top trends that are shaping the insurance sector in 2023 and beyond

As the world weathers a growing financial crisis, socio-political instability, the post pandemic repercussions and major weather catastrophes, the impact on clients and insurers alike has been profound. South Africa has not emerged unscathed, and a combination of both global and local events is forcing the insurance sector and insureds to relook their approach to risk management and insurance.

• Transformation – The COFI Act and its focus on the policies that all financial institutions will have to implement will remain top of mind for the insurance sector in 2023. Top of the list is how to address transformation. The COFI Bill allows the regulator to make certain transformation requirements part of the licensing process, such as requiring an FSP to submit a transformation plan. This comes at a time when skills shortages, the cost of attracting and retaining top talent along with meeting transformation targets are deeply intertwined and complex. Such regulatory changes, even small ones, add tremendous cost to businesses in terms of time, training of staff and compliance.
• Reinsurance Renewals are tougher – The capacity and appetite of reinsurers in both the local and global markets, particularly in the property (physical damage and business interruption) areas as well as in the casualty (third party liability and crime) sectors is hardening. The cost of reinsurance renewals has gone up significantly, in some instances upwards of 20%, bringing increased rates and premiums and in some instances, a reduction in the scope and extent of cover provided. This is in large part driven by the business interruption losses following the pandemic, as well as major losses due to weather catastrophes across the globe.
• Weather catastrophes – both globally and locally are ensuring that climate change makes its presence felt, including earthquakes, flooding, hailstorms, hurricanes and wildfires. Insurers and reinsurers are being impacted by adverse catastrophe claims which are resulting in deteriorating underwriting results.  As a result, we expect to see tough renewals and a tightening of terms and conditions in 2023 with regards to these risks. According to the latest Annual Weather, Climate and Catastrophe Insight report released by Aon, natural disasters caused a $313 billion global economic loss during the 12-month period under review – 4 percent above the 21st-century average – $132 billion of which was covered by insurance.  Data shows that 2022 was the fifth costliest year on record for insurers.¹
• Technology is opening new markets – South Africa is a case in point.  For the longest time an enormous sector of our population has had to survive and face unavoidable risks such as weather catastrophe without the protection of insurance – not because the need for it never existed – but because outdated and rigid systems, regulations and a lack of payment solutions simply did not encourage the innovation needed to cater for a diverse society.  Spatial mapping technology and IoT devices are now enabling the creation of insurance solutions for customers whose property and assets were previously ‘uninsurable’ – and who have to date been ignored by the insurance market.
• Advice remains key – Maintaining the advice process remains an important aspect in emerging markets like South Africa since consumers still require significant personal finance education and motivation to take up insurance solutions.  Here insurance companies are striking a balance by delivering process automation that supports brokers to perform complicated and tedious admin tasks in the blink of an eye. Not only do brokers benefit from more streamlined processes and satisfied customers, but insurers get to empower a key part of their distribution network to close more business, quicker and easier, while ticking all the compliance boxes.
• Usage-based Insurance – we can also expect to see more demand for and development of ‘usage-based’ insurance which provides customers with the ability to switch cover on and off at specific times for when they need it – for example the globally mobile executive who only needs theft and fire cover for his parked vehicle while he works abroad.  Likewise, for South Africa’s emerging market where many people are struggling with consistent income security, customers will look to solutions that allow them to pause their insurance or reduce the scope of what’s covered for a specified period of time. Innovation in this space gives customers greater control and transparency of their insurance cover, when they need it.
• Digitisation and optimisation of processes

Companies across all sectors are adopting digital strategies not just to achieve cost savings and operational efficiencies, but to improve customer communications and satisfaction.  Consider that almost every aspect of banking can now be done online without needing to visit a branch. The insurance sector is also making strides on this front – mundane, paper-driven and time-consuming processes are being transformed through digitisation.  Claims logging, processing and loss assessments are being automated as far as technology will allow to ensure speedy processing and resolution for the customer. Brokers too will need to evolve with how advice and customer engagement is delivered and how customers are onboarded.  In this space, GENRIC’s work into providing full automation of quotations and online acceptances including online FICA clearances when onboarding new customers is a gamechanger for brokers who are grappling with integrating technology into their advice and service processes.

• Blockchain – Essentially blockchain is a more sophisticated way of recording digital events and information in a database and once there, the blockchain or database cannot be altered in any way, creating a verifiable, permanent record. Cryptocurrencies were the original result of this new technology, but the influence of Blockchain in the insurance sector is significant, notably on issues such as fraud, third party payment transactions, customer service and security.  Blockchain’s ability to provide complete accountability, transparency and superior security will help insurers save time and money, as well as improve customer satisfaction and automate claims processing through smart contracts.
• Artificial Intelligence – Artificial Intelligence and machine learning have the potential to make virtually every process in the insurance value chain more efficient and streamlined.  Aspects such as underwriting, pricing, personalisation, data collection, fraud detection and even advice are set to be transformed by this technology. This shift will be driven by insurers looking to achieve greater efficiencies by solving challenges in the manual activity value chain with automation. However, AI is still new technology and there is much to learn and decipher about important aspects such as data and input bias. Human intervention and interpretation will remain highly relevant even in the AI space.

The standout of the last three years has been the interdependency between the global economy and various additional key risks at home. At a time of rapidly changing customer needs, growing regulatory demands, capital pressures and technological disruption, GENRIC is focused on investing in insuretech to help build a more resilient insurance business, new lines of coverage that meet the evolving exposures the market is facing and optimising and modernising traditional insurance distribution by embracing the opportunities presented by technological disruption.

Stuart Forbes, Chief Risk and Compliance Officer of GENRIC Insurance Company Limited.