South African Insurance Association

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Underwriting Practices- SAIA Bulletin March 2019

Recent years have shown a substantial increase in losses within the personal and commercial property classes of business of insurers in South Africa. Classes mostly affected include fire, business interruption, buildings and assets. The majority of the causes of these losses have been attributed to changing weather patterns and the severe water scarcity being experienced in many areas. Flooding of highways, severe hailstorms, tornado’s, wildfires and drought conditions across several provinces are some of the contributing factors.

There are other contributory factors of these losses, however, there seems to be one which is often overlooked; underwriting practices. In todays economic climate it is extremely important to ensure that underwriting practices are not compromised. Insurers need to have solid underwriting practices and procedures in place and ensure that the appropriate underwriting skills are available. Most important is that these underwriting practices are in place not only at inception or renewal of a policy but that the terms and conditions imposed by these underwriting practices are applied the time of a claim.

The importance of sound underwriting practices is even more important in the current economy and the state that many municipalities are in. Some businesses have found it necessary to reduce costs which could influence the way in which they conduct business such as reduced maintenance programs and inadequate staffing resulting in reduced safety standards. In addition to this, building structures could be compromised due to inefficiencies within the building inspectorate at municipalities; fire-fighting capabilities compromised due to lack of training and inexperienced fire fighters, water restrictions due to drought conditions and the lack of water due to aging infrastructure. Aging infrastructure also impacts a number of other areas such as roads, bridges and electricity. The recent closure of the M2 in Johannesburg and Eskom load shedding are testament to this.

In addition to this, ensuring that building standards are met and regulations adhered to is paramount to protect both insured and insurer. Where the integrity of these standards and regulations are compromised, the likelihood of a claim occurring is increased and insurers could reject liability. Prudent underwriting and the skills and experience of an underwriter are critical in assessing the risks associated with the exposures alluded to above. This should alert insurers to pay attention to underwriting practices and the adherence thereto.

For more information contact Susan Walls, SAIA Technical Advisor: Insurance Risks: