What can insurers do to revitalize the economy?

Press Release | May 11, 2016 | Johannesburg
The South African economy is going through difficult times at the moment. The insurance sector plays a critical role in protecting and safeguarding individuals and businesses in the country. Given the current situation, the sector has an even more imperative role to play in covering the current and future public-private initiatives aimed at reviving the country’s economy writes Allianz Global Corporate & Specialty (AGCS) Africa CEO and Insurance Institute of South Africa (IISA) President, Delphine Maïdou.
The South African economy is going through trying times at present. The difficulties are well known and documented and have been attributed to multiple factors: The biggest contraction in global trade since the financial crisis especially with major BRIC trading partners with Brazil and Russia currently on below investment grade by major rating agencies. The slowdown in the Chinese economy, subdued knock-on effect from the drop in commodity prices and structural problems within the local economy are some of the contributing factors.

The country’s economy has been slowing down since 2008, but the downgrades by Standard & Poor's and Fitch towards the end of last year to one notch above sub-investment grade signaled a loud and clear call for leaders in government, labor, civil society and business to work a lot harder to find a common ground to prevent the country from being downgraded to below investment grade this year.

This is arguably one of the toughest periods the country has been through economically since the dawn of democracy. It came as no surprise to see macro developments as well as changes in legislation and regulation ranking high in the Allianz Risk Barometer 2016. This clearly indicates that businesses are concerned about the impact of unpredictability, uncertainty and lack of a clear economic policy direction.
A below investment grade sovereign rating will affect the insurance industry in numerous ways as the sector thrives within growing economies, and is itself one of several components of a healthy financial services sector in South Africa. There may well be a rise in insurance costs as a result of inflation and the weakened currency.

Retail insurance consumers may see insurance as a luxury due to a rise in cost of living. In addition to this, customers may not be able to buy more assets due to decreasing disposable income. This in turn may upset the growth in gross written premiums, constraining the development of the industry. As a result of this policyholders may rethink taking out insurance and rather spend whatever disposable income they have on other items they deem necessary.
We have already seen significant rises in interest rates and this means that customers are already feeling it in their pockets. It is very important for customers to speak to their brokers and insurers to ensure they have adequate cover for their assets, for both private and commercial risks. Openness and transparency is important especially during this tough economic time.

Importantly, the sovereign rating of South Africa affects the rating of insurance companies and this means that insurers may not be able to place facultative insurance within the country if they have a sub investment grade. As it is insurers in South Africa are already feeling the effect of downgraded sovereign rating as global businesses and financiers often insist on an A+ rating. At times they do not even consider parental guarantees for international companies operating in South Africa, which results in the local entity losing some current and potential accounts.

The economic challenges facing the country have certainly compelled government and business to work a lot closer than ever before to realize some of the goals outlined within the national development plan. The question is what can the insurance sector do to support initiatives that are borne out of this partnership to ensure that the revival of the economy is protected?

The increasing flow of investment in infrastructure, energy, transport and logistics, water and sanitation, land and agriculture, and telecommunication to name but a few needs the insurance sector to get involved from inception to ensure the effective management, control and reduction of risks – wherever and whenever these occur.
Delphine Maïdou
We believe that a collaborative approach – harnessing the combined inputs of all parties – offers the best response to these risk challenges, and that the majority of losses can be avoided through diligent risk management and sound insurance solutions. Insurance companies operating in South Africa are well capitalized to support the economic and infrastructure development the country sorely needs but they must to be brought on board early by both government and business. Equally, this period presents an opportune time for both government, business and the insurance sector to review all insurance business that has been placed outside of South Africa and work together to bring it back to the country as the industry has the capability and capacity to manage complex corporate and industrial insurance.

Government’s increased focus on growing the Small, Medium and Micro sized Enterprises (SMME) sector will enhance the growth in commercial insurance ensuring the sustainability of enterprises in the long term. From a retail perspective, the country’s insurance sector still has room for growth as 65% of vehicles and household items are not insured.

South Africa is a great country with a diverse economy backed by a strong private sector, prudent and sustainable management of finances and good governance. We have one of the best constitutions in the world, which serves as a reminder of what can be achieved through collaboration and hard work. Let’s work together now to revitalize our economy while ensuring that individual and business risks are adequately protected to provide a safety net which is greatly needed at this time.
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Allianz Global Corporate & Specialty (AGCS) is the Allianz Group's dedicated carrier for corporate and specialty insurance business. AGCS provides insurance and risk consultancy across the whole spectrum of specialty, alternative risk transfer and corporate business: Marine, Aviation (incl. Space), Energy, Engineering, Entertainment, Financial Lines (incl. D&O), Liability, Mid-Corporate and Property insurance (incl. International Insurance Programs).

Worldwide, AGCS operates with its own teams in 34 countries and through the Allianz Group network and partners in over 210 countries and territories, employing almost 4,700 people of 70 nationalities. AGCS provides insurance solutions to more than three quarters of the Fortune Global 500 companies, writing a total of €7.4 billion gross premium worldwide in 2017.

AGCS SE is rated AA by Standard & Poor’s and A+ by A.M. Best.
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