In order to provide the safety net needed by the nation’s economy and society at large, insurers must manage risks proactively, according to Lesetja Kganyago, governor of the South African Reserve Bank (SARB).
Strengthening institutional risk management and our collective thinking on risk mitigation will be essential in this regard, he said.
During his keynote speech at the African Insurance Exchange 2022 Annual Insurance Conference on Monday, the governor made the comments.
“Despite the numerous shocks that have occurred over the past two years, the financial sector as a whole has held up well.
Like many of you at this conference, the Prudential Authority (PA) is steadfastly committed to helping the insurance sector thrive by offering clear supervisory guidance and regulatory certainty, according to Kganyago.
In order to strengthen the sector’s resilience, he stated that the SARB would work with the Financial Sector Conduct Authority and industry associations going forward.
In his speech, Kganyago discussed the major dangers that the non-life insurance industry has recently had to deal with, such as the rare COVID-19 pandemic, the unrest in July 2021, and the destructive floods.
Regarding the pandemic, he claimed that the lockdowns presented a number of fresh difficulties for the non-life insurance industry and put the provisions of business interruption insurance to the test.
“The pandemic’s effects on businesses resulted in a notable rise in claims that had nothing to do with bodily harm.
This was a significant issue for non-life insurance and led to regulatory ambiguity.
“South African courts had to offer legal certainty because of the conflicting legal interpretations of these business interruption plans.
It wouldn’t be overstating things to call this a huge error in managing insurance risk, which has serious reputational repercussions for the non-life insurance industry, according to Kganyago.
A few non-life insurers made temporary payouts to help struggling industries as they worked toward gaining legal clarity.
The Governor promised to keep an eye on how business interruption claims are being paid.
He said that the SARB had also noted the complete removal of South Africa’s non-physical damage business interruption coverage, which left a substantial insurance protection vacuum.
Unrest in July 2021
In July of last year, as the nation started to recover from the pandemic’s impacts, KZN and portions of Gauteng were hit by a wave of violent upheaval.
This was characterised by rampant shoplifting, as well as the destroying and burning of both public and private property.
According to Kganyago, the South African Special Risks Insurance Association (SASRIA) reported insurance claims totaling more than R30 billion.
“The non-life insurance industry deserves praise for working with and assisting SASRIA, particularly in helping to speed up the claims process and make sure that economic activity was resumed.
“Unfortunately, not every business has started operating fully or even partially again since the riots.
The significant number of affected businesses that lacked insurance or had inadequate coverage, and many of them were compelled to cease operations, was concerning, he said.
Following up on some of the lessons learned from these incidents:
• enhanced consumer education programmes that make it apparent what is included and what is not in an insurance policy;
• specific recommendations for closing the insurance and risk protection gap, both as a sector and in collaboration with the government;
• the creation of insurance solutions and products that account for this shifting environment.
prognosis for the economy today
After a severe downturn in 2020, the domestic economy grew quickly in 2021.
The governor claimed that even though the riots in KwaZulu-Natal caused a sharp decline in GDP during the third quarter of 2021, the domestic economy expanded by 4.9 percent in that year.
The floods in KZN in January and March 2022, the sharp drop in commodity prices, and the escalating load shedding all hindered GDP growth, which would have surpassed pre-COVID-19 levels in the first quarter of 2022.
According to the SARB, the GDP is expected to grow by 1.3 percent in 2023 and 2% in 2022, respectively.
The Monetary Policy Committee of the SARB moved to normalise rates in response, raising the repo rate by a total of 200 basis points since November 2021.
Additionally, according to Kganyago, the SARB has recently had to deal with operational, information technology, and climate-related risks and opportunities.
This includes risks related to cyberspace.