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Risk and resilience: unpacking the effects of South Africa’s prolonged hard insurance market

By Cedric Masondo, Chief Executive Officer, PSG Insure

Reinsurers and insurers in the South African market have shouldered massive losses over the past five years. COVID-19 was the first in a series of unexpected disasters, volatile market forces and social instabilities that contributed to the development of a hard market.

At the beginning of 2022, conditions in the local insurance markets tightened further – resulting in arguably the most persistent hard market in recent history. 

The insurance market in retrospect
Prior to the pandemic years, South Africa’s insurance market was characterised by softer conditions. A moderately stable climate both in macro and microeconomic terms, gave rise to an abundance of capital relative to the size of the market. This in turn translated as lower insurance rates and broader policy terms and conditions. This status quo persisted for at least a decade before the arrival of COVID-19 on South African shores, which was a tipping point for the insurance sector.

No one could have predicted the sheer impact the pandemic would have on industries across the board, and certainly, no one could have foreseen what would come next. 2021 saw a spate of riots break out in parts of the country. This was followed in close succession by torrential flooding in KwaZulu-Natal. For South Africans, these untimely events played out within the broader context of the ongoing and then deteriorating energy crisis, which caused large-scale damage due to power surges, equipment failure and inventory losses.

Things weren’t looking up on the global front either. During this time, Europe saw an increase in natural disasters, and the Russia-Ukraine conflict put further pressure on supply chains. These events triggered an upsurge in claims – many of which were related to business interruption and property damage. As a result, countless insurers and reinsurers realised that some exposures had not been adequately priced in. 

These were, for all intents and purposes, years of unprecedented challenges that the market had not seen before, and which were almost impossible to anticipate. With the increase in claims serving to erode capital and threaten markets, investor confidence plummeted. 

An unavoidable chain reaction
Outside of these hurdles, the local insurance industry also suffered a knock caused by rapidly increasing inflation and a series of steep interest rate hikes. At the level of the state, slow GDP growth and a lack of infrastructure spending has exacerbated this situation. 

On the ground, issues such as poverty and the country’s record-high unemployment rate undermined any meaningful progress towards post-pandemic recovery. The culmination of these factors has meant that less disposable income has fallen into the hands of everyday customers. And with less income, comes reduced buying power and ultimately, less spend on insurable assets such as property and cars. 

Loadshedding, as a single event, has changed the local risk landscape indelibly, with many insurers removing certain kinds of cover, imposing restrictive clauses and increasing exclusions. A greater level of responsibility has fallen on the shoulders of insured parties, who now have to implement tighter, more thorough risk management strategies. 

The emergence of the hard market for insurance
For reinsurers, it has been time to batten down the hatches – to increase rates and tighten terms. In an attempt to consolidate and brace for the impact of the hard market, underwriters deemed certain disruptions such as grid failure to be uninsurable. These changes trickled down to insurers, and ultimately, clients, who have contended with getting less comprehensive cover for the same or a higher premium. 


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