A warm welcome on a slightly fresh Johannesburg morning with our beautiful MC and newly elected IIG President, Simphiwe Mtyali. She touched on the ripple effect of the ongoing war between Russia & Ukraine and its impact on global inflation. Simphiwe introduced the first speaker who addressed a new segment in today’s Outlook detailing macroeconomic developments in Africa.
Luca Moneta
Luca joined Allianz Research in 2023 as Senior Economist for Africa and the Middle East. He brings more than 10 years of experience in country and sector risk analysis from the standpoint of exporters and foreign investors. Before joining, he led the team of Political Risk Analysis at insurance broker Marsh, where he was in charge of the political risk model covering 197 jurisdictions and single-risk assessments for top clients. Between 2011 and 2021 he worked first as Underwriter on Specialty lines and then as Lead Analyst at the Italian export credit agency SACE, participating as national expert in determining country risk categories at the OECD. A graduate in Comparative Politics from the University of Milan, Luca has given several lectures on country risk for universities, business schools, and corporates.
Economic Outlook 23-24 for Africa & Middle East:
The Risk Barometer was a survey launched a few years ago, amongst Allianz clients, that covered 94 countries, 13 of which were African. Most important business risks perceived were:
- Macroeconomic
- Cyber incidents
- Business interruption
- Climate change
Macroeconomics was the biggest risk experienced in Nigeria and in South Africa due to its critical infrastructure blackouts (e.g., power blackouts) or failures e.g., failing structures. This was the first-time critical infrastructure was named a top risk in South Africa. The full report can be accessed on Allianz’s website. Global growth seems to be losing steam as fiscal impulse plays a role on the monetary stance. There has also been a sharp slowdown in global trade in 2023, but we expect mild recovery in 2024 with both volume and price corrections. China has experienced a faster-than-expected post-Covid reopening. The reopening reduced the risk of sudden stops and supports demand. There is an upward revision of Chinese imports creating USD8-bn additional export gains. Metals and minerals prices pull up as China re-opens and tension remains with several African countries struggling to keep up with demand. Sadly, industrial production in South Africa remains subdued and as a result South Africa is definitely not benefitting from the re-opening of China.
Regional Outlook – Inflation, production constraints and policy distraction:
Inflation remains the main factor widening the gaps and increasing social pressure. 11 emerging markets are at high risk of a food crisis including 4 major African countries out of 8* thus increasing the level of debt African sovereigns experience and placing them under greater stress. 8 out of 25 are located in Africa. Liquidity reserves provide a relative buffer as international reserves decrease across the continent. Business insolvencies have resulted in 1 in 2 countries above pre-pandemic levels in 2023 with South Africa showing a 4% increase. The highest risk in insolvencies has been in construction, textiles and metals. Some sectors have emerged with a more positive outlook like pharmaceuticals.
Luca ended his presentation on thus note and a brief Q&A was accommodated.
IIG host Simphiwe posed a question… “which integration contributes more to a country’s GDP, global or regional?” Kenya as an example is more integrated in terms of trade and industry, integration is less of an advantage, as global penetration is more requested. For a more detailed response, please visit: www.iig.co.za
Katlego Thaba
Katlego is a senior Consulting Actuary at Deloitte within the Actuarial and Insurance Solutions practice. He possesses deep industry experience across non-life insurance, life insurance and investments. He has held numerous leadership positions in the insurance industry, including serving as an Executive at a non-life insurer. He is an established speaker across a wide-range of topical issues and has a passion for using his technical skills to solve complex business and regulatory problems.
Katlego began by thanking the IIG for the opportunity to partake in the Insights Industry Outlook – focus on more global and economic standpoint. He drew attention to The Deloitte Centre for Financial Services (DFCS) in the US which conducts ongoing research and releases various publications including an annual global insurance outlook. For the Insights presentation he will leverage their latest publication, the 2023 Deloitte Insurance Outlook, to present their view of the key issues currently dominating global insurance markets and how they are likely to shape long-term competitiveness and success.
Insurers are facing a host of macroeconomic and global recession, lingering concerns around Covid-19. They need to create adequately customized products and services. Issues identified have been related to climate risk as well as unforeseen wild cards. Some themes identified were:
- Inflation effects
- M&A Activity
- Longer Term Reinvention
- Workplace Reinvention (WFH)
- Shift to Tech: Value Realisation
- ESG: Beyond Compliance
- Finance Outlook: New Accounting Rules
- Culture: Ultimate Transformation
Across the globe, everyone has felt the impact of inflation with a sharp and notable rise. These have triggered numerous reactions which have been exacerbated by Russia’s invasion of Ukraine. Insurers on the non-life have increased premiums which have driven topline revenue. Non-life insurers are under significant profitability pressure.
Slowing activity involving underwriters and in terms of inflationary facts more insurers could get involved in M&A activities. Carriers should be building upon the momentum that enabled the transition to a remote workforce and virtual client engagement overnight. For some insurers utilizing technology was a matter of survival and necessity and to ensure Insurers remain resilient and relevant. This is dependent on the insurers ability to pivot from laying foundations to realising value. To be able to move from compliance orientation to proactive anticipation of expectations. To broaden focus to prioritise greater experimentation and risk taking.
Change in employee expectations has pushed the “good to have” parameters to the “we need it all” bucket. Engaged employees are less likely to leave organisations.
Insurers can accelerate climate risk management and mitigation by promoting climate mitigation and risk management products, test the market appetite for new products and risk management requirements and train staff on climate literacy. Insurers also need to make social equity a bigger part of their culture, such as diversity in the workforce/customers. They must adopt an inclusive approach, breaking biases with awareness programs and increasing representation in creating a voice in leadership. In conclusion, Insurers must cultivate and embrace a culture of risk-taking innovation and broader, bolder reinvention.
Wimpie Van Der Merwe
Wimpie is the Founder and Director of: Global Choices Assets (Pty) Ltd- since 2001,Global Choices Lifestyle (Pty) Ltd – since 2002,Digital Path (Pty) Ltd- since 2014,Claim Central Africa (Pty) Ltd- since 2018 His passions include: South Africa , Art, Design Thinking and Digital Solutions
“Empathy is the key to unlocking client insights pro-actively targeting their needs with game-changing products”- Wimpie Van Der Merwe
Wimpie advised that one needs to maximise the customer experience with a total experience strategy. The CX landscape is undergoing transformation with many companies ill-prepared. Many insurers have attempted to “retrofit” whereas customers require a seamless experience. What are customer expectations and how this will disrupt the industry? The new customer expects to interact with the insurer in an omni-platform. The new generation of customers include millennials and gen-zers. It’s vital to understand the digital-native and their needs, what they do with their monies and their free time. It is Important for insurers to pay attention and develop digital technology to keep up with these needs. This new generation has made significant lifestyle shifts with truly diverse needs. One needs to reimagine a holistic customer experience as the innovative marketing battlefront. Insurers also need to innovate to incorporate hybrid advice models. This will require a redesign of existing models and how this should be dispensed. One needs to facilitate and assist customers to connect to their future selves.
Many important decisions we as individuals will face is incurring losses. Risk averse does allow people to make rational & logical decisions. When customers are enabled to visualise their future, they are in a better position to make decisions. Insurer must accept that that insurance products are linked to stressful occurrences in a customer’s life. By empowering customers to make informed decisions by simplifying the process will satisfy their emotional needs. Techniques such as listening, practicing empathy, and having problem solving skills will create lasting relationships as well as going above and beyond. Insurance must drive the creation of addressing a customer’s emotional needs. Serve your customer better by anticipating their needs. It’s also important to introduce hyper-personalisation, making insurance more personal, a challenge that can be overcome. One should conduct an honest evaluation of one’s customer experience operating model. Lastly, leveraging AI tech and machine learning to improve overall efficiency. Align your total experience strategy with your broader business goals. Businesses need to create a Total Experience Playbook for one’s business as this is essential to attract and retain customers in a changing economy and to crate superior experiences for both existing and new clients.
To create an effective TX framework – one starts with a 360° view of customers.
It is important to conduct a total assessment of one’s business and often this would require a change in one’s operating model to deliver both a customer and business value. Never stop evolving, a good design is never final and done. It is a process of continual measurement.
Patrick Bracher
Patrick has years of invaluable experience and an in-depth knowledge of insurance law (pure insurance, regulatory aspects, and the commercial side), financial transactions, regulatory law, and constitutional human rights law. His knowledge also embraces related financial services such as financial intermediaries and medical schemes. He advises many of South Africa’s life and non-life insurers, the South African Insurance Association and Lloyd’s of London in South Africa.
Patrick is known for his clear opinions, practical advice and plain language. He has written countless articles and presented many lectures and seminars. He is the main author of his widely-read blog financialinstitutionslegalsnaphot.com.
Overregulation:
Patrick firmly believes that the biggest problem with the regulation of financial services is its overregulation. The compliance burden is becoming unmanageable for both regulator and regulated. Progress in insurance industry and entrepreneurship is overwhelmed by compliance obligations and leads to delays in responses from regulatory authorities and lack of continuity.
Patrick highlighted Katlego’s points that overregulation retards and hope of entrepreneurship. It is questionable whether overregulation is a failure of administrative justice, decisions must be rational and reasonable. The quantity and not only quality of regulations may be subject to challenge. The object of the FSR Act is ‘to achieve stable financial system in the interests of financial customers that support balanced and sustainable economic growth’. The object of the Insurance Act of 2017 is a fair, safe, and stable insurance market for the benefit and protection of policyholders.
Classes of insurance business:
Non-life insurance business is now confined to “meet insurance obligations that fully or partially indemnifies loss” and excludes a life event, unless accidental. Things traditionally dealt with by non-life insurers no longer possible e.g., credit life insurance. Pooling of risks is much more difficult and health insurance has narrowed down to a limited number of insurers.
COFI Legislation:
We’re uncertain as to what the COFI Bill is going to look like and new COFI laws are not likely until 2026 as a result of overregulation. Every new word or every new law will have to be examined.
PPR and commercial policies, major commercial risks are negotiated between elected highly competent persons. PPR’s make void a policy provision that disputes only be resolved by means of arbitration. Another concern is that provisions in STIA like pay-as-paid clauses will ultimately fall within the void provisions.
FAIS Act and Product Providers – insurers are authorized FSP’s because they give financial advice, and as product providers are not financial providers for entering into policies, maintaining policies, collecting premiums, nor dealing with claims. The relationship between insurer and insured is a principal-to-principal relationship.
The Covid-19 pandemic has led to a contagious disease exclusion because the pandemic was not foreseen nor prepared for. Also, the growth of the cyber risk led to warnings about silent cyber which involves taking out specific cyber risk cover and the latest is the grid failure exclusion. It is important to note that a general exclusion does not mean underwriters expect it to happen such a nuclear exclusion which typically made its way into policy wording over the last 70yrs. The insurance industry cannot accept risks when most people in the pool will be claimants rather than premium payers.
Curatorship & Liquidation
The liquidation of Constantia Insurance shows how a massive amount of insurance regulation can go wrong. The sudden meltdown of CICL left many customers and intermediaries treated unfairly. Under curatorship CICL had no ability to write new business and once in liquidation it no longer operated, and most financial transactions were frozen. In conclusion, Patrick felt quite strongly that the massive amount of regulation is not doing anyone any good and the COFI Act and all its subordinates legislation has to be manageable for regulators and regulated alike.
The session was concluded with a final Q&A and closing from the IIG President.
Article written by: Asiya Swaleh
