DESPITE South African short- term insurers showing relatively good results in a soft domestic market, one more major catastrophe will tip already stressed global re-insurance markets over the edge, driving many overseas short-term players to the wall and increasing premium costs in South Africa.
“Most short-term players are watching this year’s hurricane season in the Gulf of Mexico with bated breath,” said Gari Dombo, managing director of Alexander Forbes Insurance.
While the global insurance industry paid out $27-billion (R184.6-billion) in catastrophe claims in 2009, the Chile and New Zealand earthquakes saw a $43-billion (R294-billion) catastrophe payout last year.
This year started with a second earthquake in New Zealand which cost the global insurance industry $12-billion (R82-billion), followed by the earthquake in Japan, which is expected to cost insurers $30-billion (R205-billion) in catastrophe claims.
“Only four months into this year, the global insurance industry is already looking at a payout of $42-billion (R287-billion) – with January’s wild fires and then floods in Australia yet to be added,” Dombo said.
Catastrophes of this nature and payouts of this magnitude have an impact on South African re-insurance pricing as most local re-insurance companies are global players. One more major catastrophe this year would cause the market to harden, making it difficult for many overseas re-insurers to underwrite risks in areas prone to natural catastrophes.
Should this happen, the South African market would also find rates hardening and local premiums increasing.
So, while there is currently stiff price competition in the local market with various insurers announcing premium reductions and others actively approaching competitors’ clients with cheaper offers, these remain anxious times as climate change makes weather patterns unpredictable.
“Now more than ever, consumers should look to the small print to establish exactly what it is their insurers are covering, especially if they are offered a cheaper premium which will inevitably cover less risk,” Dombo warned.
The South African insurance market hopes it will not experience any local catastrophes which would increase local re-insurance costs and drive up premiums even if nothing major occurred anywhere else in the world. – I-Net Bridge