An increasing number of non-life risks are seen as being too large to be absorbed by the private insurance and reinsurance market or needing premiums or limits or both that reduce the cover available. Since the Covid-19 claims were shoe-horned in by the courts of the UK and South Africa to provide extensive interruption cover that was never intended, insurers are increasingly reluctant to let that happen again.

The latest warning comes from the Federation of European Risk Management Associations who have called for collaboration with the public sector to create risk-sharing models for cyber war and systemic cyber risks which have reached those proportions. In South Africa grid failure risks are an obvious example.  Claims for the failure of utility supplies generally including water, telecommunications and sewerage look increasingly formidable. The political violence market remains hard because, throughout the world, cost of living crises and the inability to provide even basic services for everyone has substantially increased the nervousness of the market to carry these risks. We know from our own KwaZulu-Natal riots how a local event can have a massive impact on the market, and resulting in reinsurers increasingly reluctant to step into any gaps for good reasons.

Climate change is a problem both where it is predictable and unpredictable. Where it is partly predictable, such as the seasonal hurricane events in Florida in the USA, a number of insurers have gone insolvent or pulled out of the market. Where it is unpredictable, as appears to be the norm, cover is no longer as easily available as before.  In Europe, marine war risks have become expensive leading, it is reported, to some ship owners skipping cover altogether. Even the motor insurance market is affected.  It is reported that the UK motor insurance market experienced its worst year in a decade in 2022 because of higher materials and labour costs of repairs.  This problem is exacerbated in South Africa because fewer motorists are insuring, hardly any motorists obey any traffic rules, and exchange rates will affect claims costs materially.

There are two observations to be made in the light of this situation. Firstly, the courts, the ombuds and the regulators must recognise that the most important goal of financial sector laws is protecting and enhancing financial stability and the safety and soundness of financial institutions. The fair treatment and protection of financial customers means nothing if financial soundness is overlooked. Secondly, risk management is becoming all-important. For instance, cyber risk cover will demand proper technical measures to prevent events happening and to hasten recovery.  Competition authorities must allow insurers to aggregate data regarding environmental risks.  Political risks will have to have government backing.  And insurers who refuse to pay claims for law-breaking motorists should not be seen as enemies of TCF but upholding the principles of insurance which includes not insuring deliberate law-breakers.