IIG News

Stagnation + Inflation = Stagflation

The impact of high inflation, low growth, and high unemployment on the Insurance industry


The IIG proudly brings another impactful Insights Session to the industry in partnership with Swiss Re. Once again at the helm of hosting was IIG President, Thabo Twalo who welcomed all in attendance as well as our first international speaker for the year. Thabo then shared a succinct preview of the topic to be discussed.


Hayley Schell, Regional Manager at Swiss Re in Africa, provided a brief prologue to the topic and also introduced and welcomed her Zurich based colleague and guest speaker for the IIG Insights Sessions, Zaid Bhana.


Zaid Bhana is currently responsible for Treaty Casualty Business in South Africa. He started his professional career with a retail Insurance broker in South Africa in 1986. In 1989 Zaid joined the Commercial Union (later known as CGU). Since late 2009 Zaid has been based at Swiss Re in Zurich Switzerland.

Despite nursing a slight cold, Zaid still managed to deliver a highly informative and impactful session. He began with a disclaimer that despite not being an economist, it is a phenomenon that cannot be escaped as it greatly impacts their business. Inflation is volatile, difficult to predict, but does not last for too long. The bad news is that it needs to get to rock-bottom before it gets better. Covid-19 shocked the world with a different stress and as we began to slowly recover, the geo-political issues in Europe further exacerbated the problem.


Some Key Definitions were unpacked bearing in mind that these definitions can be nuanced based on one’s geographical location.

  • Inflation – Price increases over a period, purchase power decreases with demand pull and cost push.
  • Demand pull: demand for goods & services but the supply is not forthcoming.
  • Cost push: rising prices due to rising input costs resulting in an increase in wage bill
  • In South Africa, the wage index has dramatically increased
  • Deflation – Decrease in prices resulting in an increase in purchasing power, however there is an increase in unemployment due to the lack of demand
  • Stagflation – There is slow economic growth, BUT prices are on the rise. A non-active economy with increasing prices resulting in high unemployment
  • Recession – There is a significant decline in economic activity and this shock to the economy results in financial damage e.g., Covid-19’s impact on the world. There is also a current debate on how AI & digitization will impact unemployment
  • Hyperinflation – Sharp spikes in prices contributing to an “out of control” inflation whereby there is more money being printed, but no growth in the economy


Zaid then provided a view of the Risk Landscape as per Swiss Re.

Negative: geopolitics, inflation, accelerated policy tightening

Positive: transition to “living with Covid-19”, stronger fiscal spending

Although China’s yield curve looks higher, their actual needs are much higher. Unfortunately, the prognosis for 2022 & 2023 does not look good due to the recent cataclysmic events.

South Africa

Sources: Stats SA and Analysts

  • SA has a target range for CPI 3% – 6% but is currently between 5.7% – 5.9%
  • Electricity and energy costs
  • Food prices pressure (grains, food oil etc.)
  • Import cost inflation (global markets & Rand)


  • GDP
  • 2021 4.9%
  • 2022 – 2.1% to 2.3% (real GDP)
  • 2032 and 2024 – 1.9 to 2.1% (real GDP)


  • Unemployment is currently at 25% to 31%
  • PPI – producer price index
  • 2020 – 3.3%
  • 2021 – 10.5%


  • Wage and Construction Material Index
  • Increasing


  • Medical Inflation
  • Varies (low adjustments but deferred) – medical aids on average increased by 4.9%



Re(In)surance Effects

In general, there are increases in claims costs as well as inflationary impact on asset returns. The challenge is Insurers could only be exposed to specific components of CPI.

Property – loss cost at current price levels whereas premiums are priced at original price of property. Premiums rise slower than the loss cost.

Motor – experienced general increases, supply chain shortages e.g., chip issues, vehicle and parts availability or lack thereof, economic replacement, labour disruptions, YoY changes in vehicle specifications and new vehicles vs spare parts.

Medmal – with technological advancements and treatments, medical inflation is always higher than CPI.

Engineering – experience periods of high inflation but is influenced by the portfolio quality and performance, effect on policies with a long duration, construction quality, pressure to maintain margins, CAR/IDI

Liability – increased liabilities on balance sheet + reserve increases, future claims on policies issued now, loss of earnings > and TP no great reason to control costs.

Liability – social inflation, litigation funding/class actions







Takeaways and Looking Ahead

  • CPI is not adequate nor enough
  • Closer scrutiny on what drives loss costs
  • Deductibles will need to be adjusted
  • More frequent rate adjustments
  • Data/tech needs to be efficiently employed
  • Underwriting efficiencies will need to be found
  • Greater scrutiny on supply chain and potential systemic risk due to over dependency
  • Identity hidden/pent-up inflation
  • Account for anticipated Legislative and Monetary policy changes


Zaid Bhana ended his session and invited questions and comments which were facilitated via the slido.com App.


Article by: Asiya Swaleh