Does the SA market suffer from amnesia? - September 2004
There seems to be a definite trend developing at the moment for local insurers to ...again... sacrifice sound technical underwriting disciplines in the corporate and commercial market in the interests of making up lost market share. Although the US terror attacks on the back of other international catastrophes on 11 September 2001 saw markets harden worldwide, the local market has not been hit by many major losses and insurers have made good profits in recent years.

After 11 September 2001 policy conditions were much stricter and the market was able to recover because of the application of sound underwriting disciplines in the wake of the terror attacks. But now the chase is on to regain lost market share and companies may not really be renewing corporate programmes based on the same sound principles. This is not only evident in the reduction of premiums but also by the enhancement of policy conditions.

This comes at a time when companies are not enjoying the level of investment earnings that have traditionally been available to offset underwriting losses and the South African insurance industry may find itself in difficulty if it doesn't begin to manage the self-created cyclical nature of the corporate and commercial insurance market. Basically, insurers are not allowing adequate recovery periods for stakeholders to again earn stabilised returns after loss making years when hard markets exist, before they revert back to chasing market share.

This not only harms the industry's credibility with clients who are subjected to fluctuating cover from one year to the next but also casts doubt on the financial soundness and investment value of a market that is so volatile.

Clients are unfortunately caught in the middle: on the one hand they face rigorous corporate governance obligations which require them to manage and provide for risks; and on the other they find themselves at the mercy of a volatile market over which they have no control. To counter this, clients may be forced to consider stricter risk management programmes which include more prudent management of their physical risks and the employment of an integrated strategy that combines traditional risk transfer with alternative risk financing instruments through which predictable losses are removed from the equation and only catastrophic losses are insured.

However, the fact of the matter is that, in a relatively small market, a total industry response - including brokers - is required if the cyclical nature of the corporate and commercial market is to be managed effectively. If the industry is not brave enough to do this then it will find itself forever trapped in this cycle.