Affordable insurance underpins SA’s new growth plan

Nico Esterhuizen, General Manager: Insurance Risks, SAIA

Author: Nico Esterhuizen, General Manager: Insurance Risks at the South African Insurance Association (SAIA)

While it may not seem obvious at first glance, some of the most important economic reforms announced by President Cyril Ramaphosa in his State of the Nation Address (SONA) recently – such as infrastructure investment and growing the agricultural sector – are underpinned by the non-life insurance industry. 

Because it provides cover against losses across a wide range of risks – from personal effects, to building and infrastructure and vehicles – the viability of the non-life insurance sector impacts the entire economy. In addition, by providing surety to investors, insurers offer small and large businesses the ability to access credit from financial institutions to further grow their businesses.

It is therefore imperative that insurance in South Africa is made more affordable to more South Africans as the country charts a new growth path forward and government seeks to attract investment in our economy.

The sustainability of the insurance industry rests on a stable business environment and a well-managed regulatory environment. It’s survival also depends on maintaining healthy claims loss ratios.  This is the percentage of the amount paid towards paying insured claims/losses measured against the amount of money received for the cover or insurance.

Laudably, President Ramaphosa’s government has committed R100 billion to a newly created Infrastructure Fund over a 10-year period.

This fund will be used to leverage financing from the private sector and development finance institutions. These funds are not only necessary to maintain and fix important infrastructure such as roads, railways and transport networks which are a prerequisite for doing business for many companies in South Africa, but which are also a critical consideration for attracting new investment.

Over the past decade poor infrastructure in South Africa – especially road and rail – has led to increased losses due to accidents.  Maladministration of municipalities has exacerbated the impact of poor infrastructure across the country on insurance claims.  For example, the inefficient management of fire brigades has led to poor response times to fires in many towns and cities, inefficient monitoring and evaluation of business firefighting equipment, lack of building inspections and compliance and unlawful occupation of open land leading to veld fires.  As a result, losses due to fire have increased significantly for domestic insurers.

However, it is positive that President Ramaphosa announced that government has begun the process of stabilising and supporting 57 municipalities, where over 10 000 municipal infrastructure projects are being implemented.

The non-life insurance industry is of the view that constructive engagement at the various spheres of government is required, involving the private sector, to create more capacity and capability for monitoring and evaluating municipalities’ risk management practices.

For example, the private sector could assist with providing firefighting training and many other technical capabilities available within the insurance industry.

President Ramaphosa also noted that the agricultural export sector would be used as a solid foundation to help develop agriculture in South Africa for all. Indeed, with government support, a public private partnership with the non-life insurance industry could assure food security by contributing towards the creation of new emerging farmers and sustainability of existing commercial farmers.

It is clear that farmers, especially emerging farmers who remain vulnerable to changing weather patterns, need a financial buffer against losses from drought, storms and floods. To help these small holder farmers to grow sustainably, innovative insurance products such as index-based insurance could protect them from catastrophic weather losses. Index Insurance products provide a new form of insurance that can be provided at a lower cost than traditional insurance which has a market penetration of less than 1% for the small holder farmers.

The non-life insurance industry therefore supports a ‘Public Private Growth Initiative’ to unlock new opportunities in this promising product area.

In support of assuring food security and towards small emerging farmer development, non-life insurance members, alongside government, are working towards an Agriculture (Agri) Insurance Partnership. One of the aims of the partnership is to enhance food security by urgently implementing insurance subsidy support for commercial farmers specifically to protect against drought. South Africa is one of only a few countries with a sophisticated commercial farming industry without insurance subsidy support from government. Not only will this support contribute to our food security but also make our farmers more competitive in the international market.  The partnership also aims to further contribute to food security but also the growth of emerging farmers by supporting the emerging farmers through index insurance, highly subsided by government.

It is envisioned that the insurance policy can be used by emerging farmers as collateral to raise capital. This will also support President Ramaphosa’s drive to promote a more diverse and productive agricultural sector.

Another highlight of the President’s address was the commitment to harness technological change in pursuit of inclusive growth and social development.  Around the globe, technology is enabling insurers to bring more affordable insurance products and services to the market through digital transformation. The potential in South Africa to do this remains a key area of focus for local players.

The State of the Nation Address outlines a plan for putting South Africa back on a sustainable growth path.  Now more than ever, the non-life insurance industry is well positioned to provide innovative and affordable insurance products to support these ambitions.



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