In today’s rapidly evolving world, insurance costs are influenced by many factors, many of which are interconnected and complex. At Risk Benefit Solutions (RBS), we understand the importance of being informed about these drivers to make the best decisions for your insurance needs. Below, we break down the primary factors currently driving the insurance cost, as highlighted in our latest infographic.
1. Climate Change and Weather-Related Losses
The increasing frequency and severity of extreme weather events, such as floods and storms, significantly impact insurance costs. South Africa, for example, has seen a shift towards wetter conditions with the La Niña phenomenon, leading to catastrophic events like the KwaZulu-Natal floods. These events result in higher claims, pushing up insurance premiums.
2. Fire Risk
Fire remains a significant risk for both commercial and residential properties. Compounding this issue is reducing firefighting capabilities in some regions, which increases the risk of severe losses. As firefighting services become less reliable, insurance premiums rise to reflect the heightened risk.
3. Infrastructure Degradation
South Africa’s ageing infrastructure, particularly in the energy sector, has led to increased power surges and extended periods of load-shedding. These issues cause business interruptions and contribute to a rise in claims related to damaged equipment, further driving up insurance costs.
4. Geo-Political Tensions
Global tensions and conflicts have disrupted supply chains, leading to increased logistics and imported goods costs. This disruption affects the availability of crucial parts, like car components, and inflates repair costs, contributing to higher premiums.
5. Rising Claim Costs
The overall cost of claims is rising, influenced by several factors, including the depreciating Rand, increased value of second-hand vehicles, and higher road traffic incidents. These factors contribute to a rise in the cost of repairs and replacements, which insurers must account for in their pricing.
6. Crime-Related Claims
High-value vehicle theft and fraudulent claims are on the rise, partly driven by organized crime syndicates. As a response, insurers are implementing more stringent measures, such as requiring vehicle tracking devices, contributing to increased costs for policyholders.
7. Reinsurance Costs and Capacity
Reinsurance is critical to the insurance industry, providing insurers with a safety net for significant or unexpected losses. However, recent substantial losses from events like the KwaZulu-Natal and Gauteng floods have led to increased reinsurance tariffs and reduced capacity. This directly impacts insurance premiums, with 2024 expected to see an average rate increase of 8%.
8. Cybersecurity – An Emerging Risk
Cyber threats are rapidly becoming a significant concern for businesses in South Africa. The past year alone saw a 205% increase in ransomware incidents, highlighting the growing need for robust cybersecurity measures. The financial impact of cyber-attacks, estimated at R2.2 billion annually, is not just a cost to businesses but also contributes to higher insurance premiums as companies seek to protect themselves against these risks.
Understanding the various factors that drive the cost of insurance is crucial for businesses and individuals alike. At RBS, we strive to give our clients the insights and coverage they need to navigate these challenges effectively. Whether climate change, infrastructure issues, or the rising tide of cyber threats, we aim to ensure you have the proper protection.
For more detailed insights, contact our team or email us at hello@rbs.co.za. We are here to offer you the best advice and solutions available
Download the drivers of the cost of Insurance: