State of the Market 2021 - Aon South Africa
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Aon South Africa State of the Market 2021 Proprietary & Confidential
A robust approach to risk management and insurance solutions is essential for organisations to remain fit for purpose in a complex world.
Contents
Insurance Key Global Insurance Key South African Insurance Market
Industry Outlook Market Trends 2021 market Trends in 2021 Heat Map
4 5 6 7
How Aon is South Africa: How Insurance Why Aon
Supporting Clients COVID-19 Update in Buyers can Manage
respect of Business and Mitigate the
Interruption Impact
9 10 11 12
Insurance Industry Outlook
Business leaders have been confronted with a pre-existing conditions combined with a pandemic
number of decisions as they steer their workforces, event are being felt in terms of rate increases,
operating models, customers, portfolios and finances capacity constraints, tightening terms and conditions
through massive uncertainty. Some of the changes and growing insurer scrutiny on risk management
they’ve made are likely to last — and some are practices. At the same time, the impact of the United
poised to completely reshape parts of their business. Kingdom Business Interruption test case will have
In the case of risk, COVID-19 has forced companies widespread economic impacts on the industry that
to reprioritise risk and resilience. extend well beyond its geographies. The coming
months will be telling in this regard.
One of the greatest lessons of the past year is that
traditional Enterprise Risk Management processes Insurance and reinsurance pricing will remain
failed to identify the full scale of the pandemic as challenged, although there is general optimism
its impacts materialised into multiple key risks to that the roll-out of the COVID-19 vaccines and the
organisations, such as liquidity, credit risk, human introduction of additional capacity into the market
capital and accelerated rates of change. However, may temper in H2 2021. Coverage clarifications will
there is overwhelming evidence that taking an continue, especially for communicable disease and
enterprise-wide approach to the response was the Cyber. Innovative technologies for automation and
most valuable lesson, and one that organisations are digitisation will become investment priorities for the
likely to carry forward. With existing and emerging insurance industry, while alternative risk retention
risks converging, future shocks on an organisation’s and financing strategies will become more prevalent.
radar, together with heightened risks such as Cyber
associated with the pandemic’s remote and digitised Understanding how this could impact your
workforce response, organisations need to take steps organisation and the steps that you can take to
to reprioritise risk and resilience. proactively manage the expectations of your
business stakeholders and deliver an optimal
For commercial insurance buyers, the impact of
outcome is crucial.
Key global insurance market trends in 2021
Challenging conditions continue: Insurers, focused on balancing Operational & Underwriting Shifts: The insurance industry will
their books and improving their results are introducing focus on implementing controls and driving additional efficiencies
significant price and deductible increases and restricting throughout the entire distribution chain – from centralised
coverage terms. The environment is driven not only by underwriting to accelerating digitisation and virtual processing.
COVID-19 and resultant economic uncertainty, but also by Traditional data and analytics will be integrated with data
escalating loss costs and reduced investment income due to from alternative sources and artificial intelligence to enhance
low interest rates. underwriting and claims handling. As risk profiles have shifted,
underwriting strategies have changed. A risk that may have been
approved in Q1 may not have been approved in Q4, or significant
additional underwriting information may have been required.
Continued Price Escalation: Poor underwriting performance will
continue to be a focus, especially in certain lines of business,
and combined with uncertainty related to COVID-19, economic
conditions and social inflation will mean continued scrutiny Alternative Products & Solutions: Protected Cell Companies
around pricing. New capacity will enter the market through
ZAR insurer start-ups, reinsurance capacity and shifting insurer
(PCCs) and captives will continue to grow in popularity
as organisations look to access additional capacity via the
appetite, bringing some rate relief. COVID-19 has provided reinsurance market, but also utilise their balance sheet more
significant impetus to the Insurtech space as the traditional effectively to retain more risk and address new and emerging
insurance marketplace moves to implement more technologies risks. New products such a parametric policies, event-focused
and AI processes. policies and usage-based policies will increasingly gain traction as
data becomes more available and consumer trends evolve.
Coverage Clarifications: Continued uncertainty around coverage
for COVID-19 and pending regulatory guidance through
the January reinsurance renewals will give rise to continued
clarification and exclusion of coverage for communicable Business Interruption (BI) risks intensify: BI has been on the
disease. As insurers continue to exclude Silent Cyber from Top 10 list of risks facing businesses since Aon’s Global Risk
existing policies, the need for stand-alone Cyber coverage will Management survey started 2007. The UK FCA business
heighten. interruption test case represents a watershed moment for
the industry. While the impacts have yet to play out, they are
expected to reach well beyond the specific geography and line
of coverage (Business Interruption) that were the subject of the
Heightened Risk Complexity: Supply chain dislocation will case.
heighten underwriter focus on supplier transparency and
supply chain resilience, particularly for Business Interruption
coverage, and especially for the technology, manufacturing and
automotive industries. Long-term and continued work-from-
home arrangements will heighten focus on employee safety,
employee wellbeing and Cyber.
Page 5 – State of the Market Report 2021Key South African market trends in 2021
1. 5. 8.
Risk readiness is falling: Climate Change: Cyber Risks are amplifying:
While risk readiness is falling, volatility Weather catastrophes and resultant losses Cyber security and privacy risks are
is growing due to the financial are intensifying with climate change. It is amplifying, with COVID-19, remote
implications of uninsured losses. already taking on increased prominence as working and digitised workforces seeing
consumer attitudes change and investors an increase in cyber-attacks and large-scale
seek assurance that companies have identified and put disruption. A robust technical infrastructure and end-
2.
Reinsurance markets are hardening : in place plans to mitigate climate change risks. to-end digital processes are key elements to safeguard
The reinsurance market continues to harden productivity.
into 2021 which ultimately has a knock-
6. 9.
on effect on the overall market. COVID-19
Growing geopolitical and socio-economic Market volatility drives need for
claims, high natural catastrophe losses and
risks: payment protection:
poor returns on investment have led to widespread
rate increases. Prices hardened in all major lines of GDP growth prospects for 2021 are South Africa is currently experiencing
reinsurance business and geographies for excess-of-loss expected to be negative, with investor difficult political and economic
treaties. and consumer confidence at the lowest conditions, which is driving the need
ebb since just before South Africa’s transition to for trade credit insurance.
democracy in 1994. Further credit rating downgrades
3.
Capacity is reducing: will lead to increased financial market volatility.
Insurers continue to withdraw from poor Record high unemployment rates and failing
performing classes and refocus their appetite service delivery and infrastructure are likely to fuel
especially on challenged occupancies heightened destructive social unrest. Deteriorating
such as the mining sector, heavy industry, public infrastructure, poor local administrative
textiles, food industry and any cold storage-related delivery and energy shortages and load shedding
exposure (Expanded Polystyrene), as well as from are significant risks to business continuity and
poor performing classes such as D&O, Professional profitability.
Indemnity, Casualty, Cyber, natural catastrophe exposed
and large limit Property.
7.
Regulatory Changes:
4.
Property rates will continue to increase: Compliance with both local and
Property rates have been increasing for international laws and regulations will
the past three years and are expected to increase risks and costs of compliance and
continue increasing in 2021. Increases in working.
2021 could be as much as 30% up, based
on acceptable claims performance. COVID-19 will
continue to have a major impact on the sector in 2021
and there is increased competition for tenants, capital
and property assets.
Page 6 – State of the Market Report 2021Insurance market heat map Q1 2021 Market Dynamics: EMEA and South Africa Page 7 – State of the Market Report 2021
EMEA and South Africa Q1 2021 Rate Trends
Down Flat +1-10% +11-30% +30% N/A
Page 8 – State of the Market Report 2021How Aon is supporting clients
Aon’s United Broking approach facilitates Aon’s Data Scientists, Actuaries, and AI Experts in the
engagement across retail, wholesale, reinsurance, Aon Centers of Excellence in Dublin, Singapore and
Aon’s legal, technical, and policy wording experts
and risk engineering to identify traditional and non- Krakow use cutting-edge methodologies to interrogate
challenge insurer behaviour and ensure any changes
traditional approaches to approaching the market, Aon data together with data from external sources
made are fully understood by insureds.
structuring the placement and managing cost of and develop new client solutions – like the Aon Client
risk. Treaty.
Aon’s Protected Cell Companies (PCC) and captive
teams work with clients to optimise the balance
of risk transfer and retention financing through Partner with Aon and Insurers on Business Interruption
comprehensive valuation, comparative analysis, loss valuation methodology.
feasibility studies and utilisation/strategic reviews for
existing captives.
Page 9 – State of the Market Report 2021South Africa – COVID-19 Update in respect
of Business Interruption
The recent appeal court judgments in South Africa and insurers and reinsurers, most insurers have not wanted to although the court cases have provided greater certainty
internationally has led to greater legal certainty regarding relinquish their previously stated positions until the appeal regarding certain key principles, one would still need to take
certain key questions that the insurance industry has courts had provided legal certainty. account of the actual cover provided by the relevant policy
been grappling with since March last year. The courts under consideration. Each policy would be governed by its
The leading judgment in South Africa has been that of own specific terms and conditions.
have supported the principle that the insured peril for
Guardrisk Insurance Company Limited v Café Chameleon
the purposes of the infectious and contagious disease
CC. This appeal was heard on the 23rd November 2020 in Our claims advocacy team has already begun the process
extensions on business interruption policies includes both
the Supreme Court of Appeal and judgment was handed of engaging with the respective insurers in relation to
the occurrence of the disease within the specified radius and
down on the 17th December 2020. Before that, a full the business interruption claims that have been notified.
the government’s response to it.
bench of the Western Cape High Court had ruled in favour In some cases, previously closed claims have been
of the insured policyholders in the case of Ma-Afrika Hotels reopened. In other cases, information is being sought from
In the case of Guardrisk Insurance Company Limited Café
(Pty) Ltd. and Stellenbosch Kitchen (Pty) Ltd. v Santam policyholders to enable loss adjusters to be appointed or to
Chameleon CC the Supreme Court of Appeal stated
Limited. enable loss adjusters to begin their work of adjusting the
that “Viewed slightly differently, because the lockdown
claims.
was a response to a national outbreak, which included, In the UK, judgement was handed down on the 15th
predominantly, the Cape Town outbreak, Café Chameleon’s January 2021 in the test case of the Financial Conduct No doubt we expect there to be a backlog as the insurers
losses were due at the very least to concurrent causes. As a Authority v Arch and Others. In this case the Supreme and adjusters will be dealing with claims that have been
matter of ‘reality, predominance and efficiency’, therefore, Court dismissed the insurers’ appeals in favour of the FCA’s lodged from all parts of South Africa and via other brokers
the local outbreak and government response, was the real appeals. as well. We also recognise that there is much work to be
or proximate cause of the business interruption.” done and individual circumstances and other ancillary policy
Whilst some insurers have communicated their respective issues may give rise to additional challenges.
Considering the significant financial impact of the COVID-19 positions following the latest court developments, others
pandemic on businesses and the potential impact for have yet to do so. It should also be borne in mind that
Page 10 – State of the Market Report 2021How insurance buyers can manage
and mitigate the impact
Expand risk management decision-making to address long-tail and emerging risks
Boards and executive management teams need to broaden their perspective when considering risk and increase their focus on identifying and evaluating
future major shocks that could disrupt strategic objectives and present threats to the organisation. This will help organisations increase their preparedness and
explore opportunities to enable them to thrive. It is becoming clear that resilience plans associated with prior business models will not be sufficient to protect
organisations from these emerging risks.
Build a resilient workforce
In Aon’s COVID-19 Risk Management and Insurance Survey conducted in Q4 of 2020, it was notable that survey responses point to an overwhelming
consensus that people are at the heart of business resilience and strategy success. Workforce stability and engagement is a key driver for businesses to be
sustainable and adaptable across all countries and regions in a volatile and changing risk landscape.
Rethink access to capital
Few respondents in Aon’s COVID-19 Risk Management and Insurance Survey said they submitted COVID-19-related insurance claims,
suggesting that insurance was not viewed as a solution or was unable to meet the needs of organisations in financing their risk
exposure. This is likely to be because either the risks are uninsurable or the scale of the event exceeds conventional program limits or
capacity. The insurance industry needs to adapt and develop solutions capable of anticipating, responding to and mitigating financial
volatility for organisations. The trend towards increased retentions will almost certainly lead to more extensive utilisation of captives,
even from organisations that may have previously discounted this approach due to a lack of scale. Leverage Aon’s risk financing
decision platform to optimise your insurance program and manage volatility.
Start early
With more submissions in the market, and greater underwriting scrutiny, the process is taking longer. Work with Aon
to establish a proactive strategy and begin the process early. The whole process must start much earlier and with more
preparation and detail. Companies will have to increasingly reconsider and justify their approach to risk and the degree
of insurance cover that they have in place.
Page 11 – State of the Market Report 2021How insurance buyers can manage Why Aon
and mitigate the impact
Proactively prepare for change Aon is not about insurance products
As-is renewals are rare. Establish budgets and manage internal expectations related to price increases, and policies – we’re about risk
deductible increases and other program changes. Buyers are potentially being asked to pay more for leadership and risk understanding
risk transfer, as well as taking higher retentions and refocusing on the quality of their risk. Coverage and being your navigator and trusted
restrictions are being applied and fewer coverage extensions are available as insurers seek to return to advisor. Our clients have the power
core coverages. The risk management function may need to help the C-suite in their organisations to of Aon United by your side - a group
understand how this shift might affect the business from a cost and volatility perspective. of colleagues, some of the greatest
minds and experts in the industry,
banded together around the world,
with unique skills and capabilities to
Provide detailed information help your businesses succeed, thrive,
Bring the insurance buying function and enterprise risk management (ERM) team more closely recover from adversity and grow.
together to better inform perspectives on risk profile and the control environment. Use all financial
levers at your disposal to manage risk and follow through with risk control and recommendations.
That’s Aon, by your side.
Engage constructively on claims
Provide solid, fully calculated claims submissions. Avoid engaging external coverage counsel unless
absolutely necessary. Be ready to consider negotiated settlements at less than the full claim value.
Manage internal expectations with regard to decision and payment timeliness.
Challenge your broker
Buyers must work with their broker to proactively assist their risk financing strategy and navigation of
the market so that they are ‘positively differentiated’.
A robust approach to risk management and insurance solutions is essential for
organisations to remain fit for purpose in a complex world.
Page 12 – State of the Market Report 2021About Aon plc
Aon plc (NYSE:AON) is a leading global professional
services firm providing a broad range of risk, retirement
and health solutions. Our 50,000 colleagues in 120
countries empower results for clients by using proprietary
data and analytics to deliver insights that reduce volatility
and improve performance. Visit Aon.com for more
information.
About Aon South Africa
Aon South Africa is a leading provider of Risk
Management Services, Insurance and Reinsurance
Broking, Employee Benefits Solutions and Specialty
Insurance Underwriting. The company employs more
than 700 professionals in its 12 offices in South Africa
with its head office in Sandton, Johannesburg.
The information contained in this marketing material is of a
general nature only and not intended to constitute advice or to
make recommendations. Although we endeavour to provide you
with accurate, relevant and current information by using sources
we consider reliable, we cannot guarantee that the information
is accurate, relevant, current or fit for your purposes. Reliance
should not be made on the information in this document
without verifying it and receiving the appropriate professional
advice. A licensed Aon broker or consultant will assist you with
any insurance related advice or query you may have.
Aon South Africa (Pty) Ltd
The Place, 1 Sandton Drive,
Sandhurst, 2196
P O Box 78367, Sandton, 2146
Tel: 0860 100 404
www.aon.co.za
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Aon South Africa Pty Ltd, an Authorised Financial Service Provider, FSP 20555
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