Load shedding claims fuelling premium hikes

Londiwe Buthelezi - Short-term insurance claims are now higher than those of burglaries in South Africa, given the country was hit by its worst-ever series of blackouts in the first half of 2022, says Sanlam CEO Paul Hanratty.

Intermittent power supply added additional pressure to an industry reeling from devastating floods in KwaZulu-Natal and a surge in vehicle replacement costs, says Hanratty, who described conditions for the industry in the first half of the year as \"a perfect storm\".

Sanlam, which owns SA\'s biggest short-term insurer, Santam, saw its headline earnings contract by 8% in the six months to end-June, mainly due to the drag coming from the short-term insurance business.

Net operating profits from Sanlam\'s general insurance operations declined by 57%, overshadowing the 23% increase in operating profits from the group\'s life insurance business as well as 25% growth in investment management operations. Because of the bigger decline in the general insurance business, Sanlam\'s net operational earnings declined by 7% to R4.4 billion.

Hanratty said that while short-term or general insurance tends to be less a volatile business in terms of premium flows compared to life insurance, it has been battling tough conditions this year, and short-term insurers are now being forced to hike premiums.

\"Insurers are having to put through very large premium increases on renewal. So those premiums are being pushed up really by inflationary and claims costs and pressures. So, the perfect storm in the short-term insurance industry meant that they had a 60% fall in their profits,\" he said.

‘VERY TOUGH ENVIRONMENT’

Hanratty thinks Sanlam and Santam\'s numbers will look good when other short-term insurers publish their results. Higher claims have also been fuelled by the rising level of crime in the country and load shedding.

\"The cost of meeting load shedding claims is now higher than the cost of burglary claims in South Africa ... It\'s a very tough short-term insurance environment out there,\" said Hanratty.

Hanratty said he is hoping for \"some recovery\" for the sector in the second half of the year, but that it\'s tough to make any promises.

As long as inflation, which has pushed to multi-decade highs in numerous countries, remains elevated, the cost of vehicle replacement parts as well as home appliances destroyed by load shedding will remain a headache. Raising premiums to pass some of those inflationary costs won\'t sit well with the many households stretched to the limit by a surge in food and fuel prices, as well as higher interest rates.

\"We do think consumers will continue to be under pressure. So we don\'t see new business growing tremendously,\" he said.

LIFE INSURANCE

On the life insurance side, Sanlam\'s new business volumes were 1% lower than in the first half of 2021, but Hanratty says this is still still a robust performance, while some parts of the business, such as its Retail Affluent business, continues to perform at above pre-pandemic levels.

Hanratty said while the financial pressure consumers find themselves under this year has affected the lapse rate of lower to middle-income segments, it has not affected consumers at the top-end.

The performance declines observed this year can also be attributed to a very steep increase in the savings rate of SA households in 2021, which saw many cut back on spending, given they still could not travel abroad and were eating out less.

\"So, last year was a bumper year. So, there was always going to be a normalisation in the current year. Lower volumes in the current year do not imply all that we are shrinking,\" said Hanratty. – Fin24