Top trends in the changing role of the modern insurance broker

“Even in this tough economic climate, brokers cannot focus on price alone and must add value to clients through strong risk management capabilities.”

This is one of the key findings of Santam’s 2023 Insurance Barometer released yesterday.

The third edition of the biennial report offers deep insights into the evolving risk trends impacting South Africa. It surveyed more than 900 consumers, businesses, and brokers from across the country. The findings were combined with Santam’s own claims data.

Focusing on the changing role of the broker, the study said the competition between direct channels and brokers will continue.

“Brokers add significant value in both the commercial and personal lines insurance space, but they cannot lose sight of why clients choose to transact through a broker, and how they deliver against those reasons,” the study read.

The top trends in the changing role of the modern insurance broker include:

• 81% of brokers (91% commercial brokers) confirmed that they conduct a home or site visit to assess risk management.
• 41% of brokers (45% personal lines) send clients email or SMS updates on new risk management tools.
• 38% (44% personal lines) go through a risk management checklist on the phone.
• 66% of commercial lines brokers said their clients have expressed concern over grid failure cover exclusions.
• 37% of personal and commercial lines brokers find communication on policy covers to be confusing.
• Almost 7 in 10 brokers (69%) believe the best way to reduce business risks stemming from failing infrastructure is for insurers to support the government through the Renewable Energy Independent Power Producers Programme.
• Two-thirds of brokers believe the best way to address systemic risks is through public-private partnerships.
• Two-thirds of brokers are optimistic about business over the next 12 months despite the tough operating environment.
• 86% of brokers plan on driving growth by prioritising sales and marketing over the next two years.
• 52% of brokers felt that a good track record in claims settlement is the most important reason for selecting an insurer.
• 32% (31% in 2021) of brokers said their choice of insurer is influenced by good broker consultants lending support.
• 32% of brokers said ease of doing business is a top deciding factor in their choice of insurer.

Reduced income for brokers

The findings of the study show that the challenging economy resulted in reduced income and increased costs for many brokers.

Nearly 40% of brokers made changes to the insurers they recommend based on premium increases, while two-thirds of broker respondents reported an increase in volume and value of claims in the past year.

Brokers also noted a change in client behaviour because of the increased cost of living:

• 22% of commercial lines and 20% of personal lines brokers reduced their clients’ insurance cover.
• 22% of commercial lines and 15% of personal lines brokers’ clients put additional risk management measures in place.
• 17% of commercial lines and 14% of personal lines brokers’ clients switched to a different insurer.
• 11% of commercial lines and 8% of personal lines brokers’ clients cancelled a short-term insurance policy.
• 7% of commercial lines and 3% of personal lines brokers’ clients opted for self-insurance.

Momentous shift

The study tracks emerging risk trends in the country. According to Andrew Coutts, the chief executive of Santam Broker Solutions, the South African short-term insurance industry is facing a momentous shift in the risk landscape.

“Climate change, infrastructure concerns and socio-economic challenges have created a tough environment for local insurers who bear the responsibility of ensuring their balance sheets can sustainably withstand the cost of the risks dominating the environment they operate in; while also protecting the financial well-being of clients, and the safety of communities,” he said.

The survey found that 80% of corporate and commercial entities have been negatively impacted by emerging risks in the past three years.

The challenging economy (66%, up from 62% in 2021) remains the key concern for business respondents, but other emerging risks are becoming more of a concern. Political unrest (59%, up from 48% in 2021), cybercrime (48%, up from 36%), and climate change (47%, up from 35% in 2021) have become increasing threats over the past two years.

The top 10 traditional risks identified by corporate and commercial businesses include:

• Loadshedding/ power surge: 41% (2021: 9%)
• Theft: 27% (2021: 34%)
• Loss of profits: 20% (2021: 14%)
• Economic downturn: 19% (2021: 34%)
• Fire (electrical/ accidental/ wildfires): 19% (2021: 26%)
• Motor vehicle (theft/accident): 17% (2021: 21%) – Transport sector: 48%
• Machinery/systems breakdown: 16% (2021: 14%)
• Climate Change: 16% (2021: 13%) – Agriculture sector: 45%
• Interest rates: 13%
• Political change (social unrest/violent protests): 12% (2021: 10%) – Transport sector: 24%

Power down

The impact of South Africa’s deteriorating infrastructure, particularly that of Eskom, and the socio-economic challenges because of the constrained economy and high inflation were visible in Santam’s claims statistics. Economic challenges also manifested in higher volumes of crime-related claims.

“Two standout claims trends developed in both the personal and commercial lines categories over the past two years that required corrective actions. The most notable being an exponential escalation of power surge claims related to loadshedding, followed by high-value vehicle hijacking and theft,” Coutts said.

He added that Santam has experienced an exponential jump in the volume and value of power surge-related claims across personal and commercial lines of business for two consecutive years, in 2021 and 2022. The combined claims volume was up by 39% in 2022 (37% in 2021) and the value of claims paid across both lines soared to 48% in 2022 (after an astonishing 53% in 2021).

On the motor side, high-value-vehicle hijacking and theft claims increased by 128% year-on-year in 2022, breaking a long-term declining trend. Fortunately, the risk mitigation efforts in the form of tracking devices proved effective and resulted in full-loss incidents declining by 80% in the first half of 2023.

“Insurance makes individuals, businesses, and populations more resilient. Insurers that take the lead in democratising insurance – by providing affordable, appropriate solutions to the low- and mid-income markets, the youth, and small and medium-sized enterprises – will help drive financial inclusion through greater insurance uptake, building a resilient, sustainable future for our industry, our communities, and our economy,” Coutts said.