Specialist insurance in SA and the changing role of the intermediary

“We live in an era of constant change” – an adage that certainly earned its worth in recent times… With the unprecedented and catastrophic impact of the global Covid-19 pandemic on societies and economies the world over, it seems the pace of change has been forced into an even higher gear.

The immediate outlook for economic recovery in South Africa remains bleak. However, if businesses are to grow in a post-pandemic economy, they fast need to adopt proactive, preventative, and agile risk management strategies to ensure that they remain competitive, especially against the backdrop of a rapidly changing and heavily regulated and risk compliant landscape.

Changing risk landscape

The risks we face in this world continue to grow in reach and scope and are systemic in nature. In this evolving and often unchartered risk landscape, businesses are not only exposed to known risks, but also to a vast range of new, emerging risks. These include extreme weather patterns, growing political volatility, regulatory controls, technological innovations, and cyber security concerns – all of which could hold dire consequences, underscoring the importance of refined risk management strategies.

The role of the intermediary has rapidly evolved to adapt to this new dynamic, specifically in the specialist insurance sector. Specialist insurance is complex by nature that requires increased technical expertise and knowledge to help clients to better understand and manage those risks that could affect the longevity of their operations.

Underinsurance – a clear and present danger

Currently the stagnant economic growth is putting severe pressure on revenues, and business owners are keeping costs down while they’re figuring out the way forward into a post-pandemic future. Unfortunately, insurers have seen a recent increase in the prevalence of underinsurance, specifically in the specialist business sphere, which is leaving many businesses exposed and severely constrained during a time of crisis.

In some cases, this is intentionally, given the added cost of insurance, but in most instances, it this is the result of a lack of understanding of the exact extent of their risk exposure and the related cover.

The true cost of underinsurance is often incalculable. Not only does underinsuring lead to partial or non-payment of claims, but also often results in tension and mistrust between the client, their intermediary, and the insurer. Insurers agree that the solution for this is two-fold: simplified policy wording, and better education for both intermediaries and clients on the extent of their specialist business insurance cover.

By driving these two focus areas, the outcome will ultimately lead to a better understanding of the mandate of specialist insurance, provide clarity on the expectations on the part of the various stakeholders, and address the risk of underinsurance and inadequate cover.

Expert product knowledge

Moving forward, specialist insurance will be underpinned by one primary goal – to drive awareness and understanding of proactive risk management and preventative strategies. Risks are escalating and becoming so complex to the extent that it is no longer financially feasible for any business to simply transfer all aspects of risk to an insurer.

The focus will be on reducing overall risk exposure capacity by anticipating, planning for, and even avoiding risks before these could pose a threat to operations or deplete the bottom line.

For this reason, executive decision makers need to engage specialist risk knowledge partners to help them better understand and manage the complex nature of interrelated risks that could threaten their operations, especially those businesses with more intricate systems and processes, extended infrastructure, and assets under management.

Fortunately, specialist business insurance offerings have kept pace with this evolution and moved from an historically reactive “repair” solution to a much more integrated, proactive, and preventative business strategy as a prerequisite for future resilience and sustainable business growth.

Intermediaries in the specialist insurance sphere are particularly adept at leveraging in-depth industry knowledge with historic, current, and predicted data analytics to calculate and reduce exposure to existing as well as emerging risks that could impact every aspect of a business.

These intermediaries have access to teams of specialist risk engineers and mandated underwriters with a solid understanding of the statutory regulations and compliance requirements relating to appropriate risk prevention solutions across many industries. This enables them to drive good and proper governance from both a sales, as well as an underwriting perspective.

Specialist insurance intermediaries liaise directly with an extensive network of brokers as well as with commercial underwriting teams to jointly identify and develop superior insurance solutions to address the very specific insurance needs of specialist businesses. This approach ensures that each client’s risk management strategy and solutions is tailored, risk appropriate, and optimally priced.

Trendspotting

The changing risk environment is largely shaped by the increased application of advanced technologies in the insurance space, which has led to enhanced decision-making and productivity, lower costs, and the general improvement of the client service experience.

However, this rapid advancement in technology is fast paving the way for associated risks that is being coined as an emerging and material threat: cybercrime. With the growing work-from-home trend, coupled with the rise in the use of digital communication, cybercrime and its related risks are amplifying, with dire potential consequences to businesses if left unaddressed.

Incidentally, a recent survey by Santam into the current state of insurance in South Africa revealed a concerning result: 45% of intermediaries polled indicated cybercrime as a key emerging risk, while only 36% of commercial and corporate clients agreed.

With intermediaries and specialist insurance providers at the forefront of emerging risks and trends that affect both the global and local commercial insurance landscape, they are ideally positioned to pre-empt and address the evolving needs of clients and to respond with appropriate risk management solutions and flexible cover to help mitigate potential threats. For this reason, the specialist insurance intermediary is increasingly considered an integral part of strategic growth and business continuity planning process by many commercial and specialist business owners.

Demystifying policy wording

Key to a successful relationship between client, insurer and intermediary is a clear and mutual understanding of the policy details, and the expectations and responsibilities of each of the stakeholders.

Insurers actively drive continuous professional development programmes to equip intermediaries with the right tools and knowledge to help them guide and advise their clients on the most appropriate solutions for their specific sector-based insurance needs, at the best possible rates and terms and conditions.

Intermediaries play an invaluable role in demystifying the often-intricate policy wording to help clients understand the clear intent and purpose of the specific solution at the time of sale, ensuring that the full extent of the policy, including the declarations, agreements, definitions, exclusions, and conditions set out in the policy document are well communicated and understood.

Trust, relationships, and the true value of the intermediary 

As complex new risks seem to emerge daily, businesses are required to constantly adapt and innovate to ensure resilience and future growth. At the same time, insurers need to respond with superior and trusted risk appropriate solutions, backed by specialist expertise and a solid understanding of industry specific market conditions.

Moving forward into a post-pandemic future, the true value and relevance of the intermediary will depend on their ability to think beyond products, and to focus on developing practical and sustainable solutions in response to the changing risk landscape. Insurers, intermediaries, and clients should harness the heightened risk awareness and use this opportunity to strengthen relationships and rebuild resilient businesses for steady growth and future success.