Insurers using technology to mitigate risk
South Africa’s leading short-term insurers are turning to technology to identify and respond to potential loss events rather than simply paying out claims when the inevitable happens.
Andrew Coutts, the head of Intermediated Business at Santam, says that a disciplined focus on loss prevention will help insurers to limit their risk exposure and make your insurance premiums more affordable.
He was commenting at the release of the inaugural Santam Short-term Insurance Barometer in Johannesburg this week.
The barometer reflects the views of consumers and insurance brokers in the short-term insurance sector.
Crime was singled out as the dominant theme among insurance consumers, who see burglary, hijacking and theft as major risks.
“Crime still dominates the psyche in a South African context with both our commercial and personal lines’ clients showing concern about theft and burglary,” says Coutts.
Survey participants were also concerned about the impact of motor vehicle accidents against the backdrop of growing numbers of uninsured cars and unlicensed drivers. These narrow concerns were listed alongside “big picture” themes, including the challenging business environment, political unrest and climate change.
Coutts expressed surprise that climate change only appeared fifth on the list. “Climate change has a big impact on insurance affordability due to increases in both the frequency and severity of weather-related catastrophes,” he says.
Consumers experience climate change first-hand, as they suffer losses to their homes, household contents and motor vehicles due to flood, hail and storm damage.
It is easier to explain why cybercrime only appears seventh on the list. “Cybercrime is a hugely under-reported class that represents a significant gap to the underinsurance side,” says Coutts. “We expect this to change once the Protection of Personal Information Act comes into force, as businesses will be required to disclose any kind of data breach.”
Personal lines’ consumers believe that motor vehicle accidents, burglary and theft are the loss events most likely to affect them. Their view is backed up by claims statistics that confirm accident damage as the dominant cause of motor losses.
The good news is that loss-prevention strategies implemented by insurers and insurance consumers over decades have reduced the contribution by criminal activities to overall losses.
Santam reports that theft and hijacking account for less than 10% of motor vehicle losses, down from 30% in the mid-1990s.
“We have been able to control, mitigate against and protect our policyholders from elements of risk through technology, tracking devices and vehicle telematics,” says Coutts.
Burglary and theft-related claims account for half of all household content losses, but such crimes are also down compared with a decade ago. One in four of the 250 personal lines’ consumers had claimed from their insurer in the past 12 months with an average claim pay-out of just more than R30000. This statistic illustrates the value of insurance to ordinary households.
Despite this, there was a trend of households to selectively cover assets. Almost 40% of respondents admitted they were aware of risks that they chose not to place on cover. Reasons for this selective approach ranged from the benign “my broker helped me to structure my cover effectively” to the more worrying “it was too expensive to place these items on cover”.
“The barometer confirms issues around the affordability of general insurance cover,” says Coutts. “It is unsustainable for insurers to continue loading the risk pool with higher premiums to accommodate higher losses.”
The two-part solution begins with broadening the insured “base” by making insurance more accessible. Adding people to an insurance risk pool allows the risk to be shared among more people and enables the insurer to reduce premiums.
The second part requires all stakeholders to shift focus from risk transfer - relying on an insurance policy to pay the claim when a loss event occurs - to preventing the loss from occurring through risk management and risk mitigation. And this is where new technologies really come to the fore.
“We can make insurance more affordable by preventing claims and limiting consequential loss,” says Coutts.
Internet of things
The Internet of Things (IoT) has been singled out as the biggest potential disruptor in this space because devices that monitor electricity supply, geysers, temperature and water mains (to name a few) make it possible to intervene before the loss event takes place and thereby prevent consequential losses. If you are prewarned of a geyser burst or electrical short, you can make the necessary repairs without incurring additional costs to rebuild, repair or replace assets following a failure.
“The barometer findings allow the entire industry to add as much value as possible to South Africans who trust them with their insurance,” says Quinten Matthew, the executive head of Specialist Business at Santam. “We believe the insurance industry can do more to promote good risk management, including lobbying the government to maintain infrastructure, invest in emergency services, enforce laws and make third party insurance compulsory.”
The rest is up to insurance consumers, who should work alongside their insurance brokers to take out adequate cover and implement sensible loss-prevention strategies.