South Africa’s insurance industry is likely to see some serious changes in the way they set premiums as new trends emerge.
Financial services firm KPMG’s latest South African Insurance Industry Survey 2022 shows that new perspectives on assets such as cars, mental health and climate change are all likely to be driving factors in the evolution of the insurance industry.
KPMG pointed to research by Cox Automotive that found that, in general, the priority of car ownership is becoming less important.
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The group suggested that younger generations are seeing less of a need to purchase a car as third-party apps such as Uber and Lyft have become available.
KPMG said that while this trend is not necessarily a problem for insurers as the vehicles still exist, the insured parties and the risk associated with the vehicles do, however, change.
Derek Vice, a partner at KPMG, said that the pandemic impacted the personal automotive industry; however, the “intent to purchase a vehicle” metric is heading back to pre-pandemic levels.
The “intent to purchase” is a forward-looking metric of expected consumer behaviour. Alongside this metric, worldwide vehicle sales point to a steady rebound, said Vice.
Another trend that has emerged is an emphasis on the usage-based insurance model.
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Pay-as-you-drive and pay-how-you-drive models have seen prominence, with modern data analytics being relied on by big companies to calculate premiums that adjust based on a driver’s behaviour.
Mental health has garnered more attention from the financial sector as a defining factor in business and personal life.
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KPMG said that mental health is of direct interest to life insurers as it can impact people’s ability to work – leading to loss of income and income protection claims.
It added that mental health is associated with physical health and suicide, which increases mortality claims.
An increase in mental health conditions is hard to point out, with studies being significantly more frequent in developed and high-income countries.
As of 2019, however, the World Health Organisation believes that one in every eight people or 970 million people around the world is living with a mental disorder.
To best mitigate the negative effects of mental health disorders, insurers will have to understand the causes as well as the risks of such illnesses in order to price better.
Perhaps more importantly, insurers stand to play an important role in helping manage the impact of mental health by promoting cultural and personal lifestyle changes that can manage the incidence, said KPMG.
A further consideration being taken by the insurance industry is climate change. With recent severe flooding, as seen in KwaZulu-Natal, queries around how best to avoid such instances have risen.
KPMG pointed to a significant increase internationally in extreme weather conditions, while domestically, South Africa had some regularity in missing big storms that hit the coast.
Flooding has been the most common type of natural disaster in the last 20 years – accounting for as much as 47%, and for 43.5% of deaths, said KPMG.
Dam failures are also associated with heavy rainfall and are associated with poor construction or maintenance. KPMG said that South Africa would likely see more flooding and dam wall breakage.
“Insurers need to start considering (if not doing so already) the risk of flooding in the pricing and underwriting models they use. The risk of flooding will continue to increase due to increased exposure to severe storms.”
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