Extreme weather conditions like floods, hailstorms, and strong winds are experienced in countries all around the world. These natural catastrophes impact the insurance industry in a similar manner across the globe. Where countries differ in particular, is the risk that comes from social, economic and political factors.
“Each country has its own unique burdens, which means that their insurance is specific to their particular situation,” says Peter Olyott CEO at Indwe Risk Services. “For example, in South Africa a new wave of people-related risks have surfaced, and that’s why our insurance industry has had to shift its focus to accommodate these different challenges,” Olyott explains.
The country’s growing population is placing a huge demand on all public services and systems. There is a greater requirement for jobs, housing and resources, and when these needs aren’t met it increases the possibility of civil unrest, strikes and riots. Political interactions and positioning also play a significant role in these people related risks.
In the event that an economy loses the capacity to fulfil functions essential to the ongoing wellbeing of its society, this loss of capacity initiates a multiplier effect. This happens when a country experiences periods of violence. Businesses in the affected area cease to operate, and police and military forces are diverted from daily crime fighting and peace work, to deal with escalating incidents of aggression, such as looting.
The hostile environment also unnerves investors and tourists, potentially causing both of these numbers to drop. In the case of the Insurance industry, these people related risks affect individual and business insurances including for instance fire claims, theft by employees or malicious damage during looting and labour unrest related incidents. Emergency services responding to a fire can also be caught up in the unrest and be unable to respond in time, creating unnecessary further losses to the community and Insurers.
What is apparent, is that risk rating models need to be readjusted to take care of these indeterminable yet clear influences on risk. Additionally, advisors need to be up-to-date with which of these socio, political and economic risks exist, and where and how these can possibly influence a client’s pure risk exposure
“The information pertaining to these newly developing risk influencing factors needs to get around the market more quickly and effectively,” states Olyott. He elaborates, “Otherwise some underwriters may face a spike in claims even though there has been an absence of so-called natural catastrophe losses so far this year.”
The effect that these people-related risks have had on the insurance industry is to create a dynamic, complex risk environment that requires constant monitoring and re-evaluation. “This is to put steps in place so that neither the industry nor its clients are blindsided by a risk that has only become apparent with the benefit of hindsight,” concludes Olyott.