IIG News

Risk management | The best weapon against mishaps

They often say pride comes before the fall, but my biggest fall came when I was at my most cautious. Just as I thought ‘let’s be cautious’ and put my hands on the breaks, I hit a rock and flew over the handle bar.


Bob Marley once say: ‘You never know how strong you are until being strong is the only option to have’. This phrase somewhat perfectly described our industry right now. The trading conditions facing domestic and global insurers and reinsurers over the past three-year period have been tough. Developments over this period introduced challenges to both insurers and reinsurers as each sought to indemnify their respective customers for business interruption losses following the 2020-21 COVID-19 pandemic, for property losses following widespread looting that affected areas in the Gauteng and KwaZulu-Natal provinces in July 2021, and for extensive damage due to the devastating KwaZulu-Natal floods in April 2022. In my current role, I have seen how much resources have been spent on one simple yet powerful number (i.e. the SCR solvency ratio) and how one conversation on structured solutions can be the difference between solvency and breaching insolvency.


I remember doing this tough race, two hours into the race I was nowhere but the views were so spectacular that I couldn’t help it but stop to take pictures. I sent a text saying don’t bother waiting for me as I won’t be arriving any time soon. P. S. I am not lost, just in over my head. And yes, I had my chance to quit but I am now way too far up the mountain for any support vehicles to come fetch me. So, I am finishing this.


We have many organisations that have been in this insurance race for decades. They know enough tricks to weather the storm. However, as we have seen with recent catastrophes, the playing field is changing. The frequency as well as severity of these rare events are increasing and the question now stands: what is the new norm? Capacity is reducing. Deductibles are increasing. What is the new norm? Again, I have seen how much due diligence and resources are spent on determining the SCR solvency ratio and how one conversation on structured solutions can be the difference between being solvent and breaching insolvency. Whether one is prepared or in over their heads, there is always a scenario that could change the outcome. Law 29 of The 48 laws of power says that: ‘plan all the way to the end. Plan all the way to it, taking into account all the possible consequences, obstacles and twist of fortune that might reverse your hard work and give the glory to others. By planning to the end you will not be overwhelmed by circumstances and you will know when’ to seek advice.


Anyway, going back to my story of how I flew over a handle bar. The guy behind me probably thought ‘out of all the technical sections, how do you fall here?’, luckily he only asked if I was ok and I responded in the affirmative. And as I dusted myself off realized my gears were messed up and my chain is off. However, to my relief I was listening in the ‘how to change the back tyre of a bike 101 tutorial’ and soon enough I fixed the gears and I was on my way. Eventually I did finish, smiles and all. Exhausted to say the least. And the moral of the story is, ongoing risk management and risk mitigation are the best weapons against mishaps; be it broken gears or insolvency. Insurers must, therefore, continually scan their operating and trading environments to identify potential risks and develop strategies to reduce the likelihood of such risks occurring and the impact, should the risk occur. It is also essential for the insurer to build up its balance sheet to withstand and recover from catastrophic, unexpected loss events. This can involve investing in technology and infrastructure; educating and training employees on risk management practices; and the use of financial reinsurance to optimise the balance sheet.


Article written by: Paballo Mukupu