A version of this article was first published in the December 2024 edition of the Asia Insurance Review.

In recent years, we have seen the growth of (re)insurance across Malaysia, with these sectors expected to grow at a compound annual growth rate of 7.8% from MYR22.6bn ($5.2bn) in 2024 to MYR30.5bn in 2028.

Malaysia has both capacity buyers and sellers. For the capacity sellers, particularly those within the reinsurance sector, there are clear opportunities for growth during 2025.

Two crucial factors for the reinsurance sector will be the rise of captive insurance, coupled with mitigating against increasing climate risk.

Captive activity

Captive insurance in Malaysia, especially through Labuan, is set to expand significantly in 2025. The Labuan Financial Services Authority has revised its guidelines, including expanding allowable risk coverage types and simplifying processes for global businesses.

As a result, there will be opportunities for reinsurance brokers. As more and more captives begin to be established, there will be a further increase in demand for reinsurance coverage, particularly in areas like excess-of-loss. This demand will provide the reinsurance sector with a flow of premium income and a variety of risks to underwrite.

Numerous captives in Labuan are being formed to address complex or hard-to-place risks which the traditional insurance market cannot adequately cover, including environmental risks and cyber liability.

The Labuan reinsurance sector should be able to capitalise on this need by providing bespoke solutions to help captives mitigate these unique risks. As more businesses Malaysian reinsurers have opportunities in captive insurance As captives in Labuan are being formed to address complex risks, there will be demand for reinsurance coverage in areas like excess-of-loss, says Mekong Re’s Mr Rajguru K.
establish captives to manage these risks, local reinsurance brokers are likely to see growing demand for solutions to cover high-severity, low-frequency events that captives may not retain independently.

Coupled with the rise in captives, another important area reinsurance brokers must focus on in 2025 is climate-related risks. This is an issue across Asia, and as a result, in 2025, businesses will be under ever-increasing pressure to implement climate mitigation strategies.

Flood risks

With flooding set to increase, the reinsurance sector must adapt to growing demand for products that address urban flood risks. Traditional insurance products may not fully address the complex and evolving nature of climate risks which Malaysia faces.

The most notable insurance solution which is likely to continue to grow in 2025 is parametric insurance.

Furthermore, the Malaysian Ministry of Housing and Local Government has recently allocated MYR219.6m to upgrade drainage systems and maintain retention ponds. In 2025, there will therefore be more opportunities for the reinsurance sector to collaborate with the government in schemes that help develop more climate-resilient infrastructure.

Lastly, there is likely to be further chances for the reinsurance sector to collaborate with local tech firms that specialise in climate analytics. Partnering with start-ups focusing on imaging and data could also provide essential insights into weather patterns and risk assessments. In states which are prone to seasonal monsoons, drones have been deployed to assess flood damage. This footage not only informs government disaster relief efforts but ensures the reinsurance industry can make an initial assessment to expediate financial support.

As we head into 2025, the reinsurance industry in Malaysia will be faced with a variety of opportunities. Along with the growth in captives and climate risk, reinsurance businesses will also be able to optimise the increasing use of AI and big data, and the growing prevalence of litigation and liability risks, to name a few. With these opportunities comes challenges, and those in the sector that do not adapt services to these transformations in the years ahead will risk getting left behind.

Pt Mekong Re, a reinsurance company with a strong suit in niche and specialty solutions, has launched in Labuan, Malaysia. The business will offer flexible reinsurance solutions across Asia Pacific in addition to South Asia, GCC and Eastern Europe, providing additional capacity for specialty lines of business and hard-to-place risks. With a strong team of professionals with feet on the ground in Malaysia, Pt Mekong Re will focus on a spectrum of business lines, ranging from aviation and construction to property, energy and forestry.

The team has a deep understanding of the insurance and takaful market in Asia and will work to secure clients’ flexible reinsurance products, tailored to their requirements.

Pt Mekong Re is part of a larger MNK Group, which is headquartered in London with operations in every continent and a global network of MGAs, Broking, Insurance and Reinsurance companies. Through the group, Pt Mekong Re has access to Lloyd’s of London, helping it to support clients navigating challenging risks.

Chairman of MNK Group, Manoj Kumar commented:

“I’m delighted to be launching Pt Mekong Re, and that we now have a team in place in Labuan. Following on from our acquisition of Oceanica De Seguros in Costa Rica, our new reinsurance company in Labuan underpins MNK Group’s Global strategic ambitions.
Pt Mekong Re provides us with a great platform to expand our services across Asia. Our expertise, backed by AA rated retrocession panel, is expected to provide real benefits to Pt Mekong Re’s clients across the continent.”

The company will be led by Rajguru K, who has over 25 years of experience in the industry across Asia and Africa. Prior to his appointment as CEO of Pt Mekong Re, Rajguru was the co-founder and CEO of a reinsurance company in Mauritius as well as the Director of Strategic Partnerships at Specialty MGA UK.

CEO of Pt Mekong Re, Rajguru K said:

“With a lack of adequate capacity in Malaysia, Pt Mekong Re will fully cater to the market in the region, providing bespoke and innovative solutions to the ever-changing needs of our clients.
Our team of experts have a deep understanding of their sectors coupled with significant local knowledge, allowing us to help customers across Asia with hard-to-place and difficult risks. No matter the risk, we will provide comprehensive protection at the fairest possible price. We will not say no to a risk. From Japan and South Korea to Vietnam and Cambodia, Pt Mekong Re will provide real value for clients across the whole continent as an agile, flexible and highly compliant capacity provider.”

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Notes to Editors

About MNK Group:

MNK Group, founded in 2009 in the United Kingdom, includes a Lloyds broker (MNK Re) with operations in every continent, a web of MGAs (Specialty MGA in UK, Italy, US and Casablanca) and a Costa-Rican based insurance company (Oceanica De Seguros).

About Mekong Re:

Pt Mekong Re’s experience in niche and specialty insurance classes, combined with its access to the Lloyd’s market, gives it the ability to navigate, understand and safeguard against challenging risks.

As well as a talented team working out of Labuan, Pt Mekong Re is a part of the MNK Group, headquartered in London with a global presence. It has access to a broad spectrum of bespoke reinsurance offerings. Pt Mekong Re’s collaborates with sister company Specialty MGA to produce market insights, additional capabilities and innovative new products.

By combining deep local market knowledge with technical underwriting expertise, robust risk management and a client-centric approach, Pt Mekong Re aims to be the preferred reinsurance partner for the region, for many decades to come.

For more information please contact:

Ben McCarthy:
benmccarthy@luther.co.uk
+44 (0)7740 486 728

Hamish Venters:
hamishventers@luther.co.uk
+44 (0)7827 971 741

Rapid digitalisation and automation, driven by the development of technology such as artificial intelligence, has had impacts on all areas of the economy, and the insurance industry is no different.

Insurance is often seen as highly traditional, and this brings its benefits, but firms will have to adapt and embrace technological innovation, or risk being left behind. The success of the fintech sector in South Africa, which accounts for 40% of all fintech revenue in Africa, shows the level of appetite for a more innovative approach to financial services. Expectations have risen and intermediaries need to meet them.

The role of intermediaries will continue to evolve as they seek to balance traditional practices with innovative technology. There are significant challenges to getting this balance right, but if firms can achieve it they will make themselves much more competitive than the rest of the market.

Implementing technology successfully

Using technology effectively requires leveraging digital tools to enhance services, and harnessing the power of big data and analytics to gain deeper insights into clients. This will allow intermediaries to more easily tailor insurance coverage to specific needs, preferences and risk profiles. Without technology, this level of personalisation will be much more challenging to achieve.

In addition, more than simply connecting customers to insurance policies, intermediaries can use technology to expand their role and enhance the value that they offer. Beyond placing coverage, technology can also be used to enhance an intermediary’s ongoing relationship with a client, by allowing them to identify emerging risks and collaborate on risk management strategies.

In the case of a loss-causing event, automating loss adjustment can provide significant benefits for clients. Faster payment will be critical to minimising disruption, especially as climate change means that the number of losses in South Africa, and around the world, is likely to rise. In the face of more regular floods, droughts and destructive storms, automation will improve both the accuracy and fairness of payouts.

Getting the balance right

Technology can also make the customer experience much simpler and faster, if automation is deployed to processes such as client communication and claims management. This obviously needs to be done carefully, and intermediaries should never forget that to a large extent their role is about developing a relationship with their client, so that they are trusted. Maintaining a human touch to their services remains important, even as technology takes on a greater role.

While clients are increasingly comfortable with, and in some cases demanding, more digital interfaces and processes, those who can find the correct balance while introducing technology to their services will benefit from the best of both worlds. Intermediaries should continue to provide easy access to support teams, which will remain an important touchpoint, especially when systems go wrong.

Firms should also remember the importance of local knowledge and expertise – having people with a deep understanding of local markets and the challenges they face will remain critical. While automation can speed up certain processes, teams on the ground who can act as an effective bridge between clients and underwriters will remain invaluable. It not only ensures clients access the products and strategies that are most suitable to them and their geography, but also offers efficiencies during the claims handling process. Knowledge of local legal systems and claims processes goes a long way towards making the client experience much easier.

Successfully embracing digital technologies while continuing to offer human expertise will ensure that clients see that they are getting value as well excellent advice. The key to getting the balance right lies in intermediaries positioning themselves as trusted advisers in a complex risk landscape, while also using technology to make it easier for clients to access that expertise.

You can read the original article on the FA News website

Digitalisation and technological advancements have continued to transform the insurance and reinsurance sectors. As part of this, the industry has looked to find new ways to exploit the huge volumes of data it obtains to improve decision-making, risk mitigation and its overall offer to clients.

The use of Big Data coupled with technologies such as AI and the Internet of Things (IoT) provides the South African insurance sector with immense opportunities. These technologies allow insurers to access previously untapped information from a vast amount of sources and harness it to provide them with a greater understanding of risks. As a result, insurance firms are far more able to tailor and personalise policies to the bespoke needs of their clients. However, with opportunities come serious challenges, which the sector must look to address in order to fully exploit the data it collects.

Using advanced technologies to maximise the amount of Big Data that insurance businesses can analyse has left the sector more open to cyber-attacks. South Africa is among the top countries in Africa facing significant cyber threats, with the country experiencing an average of 1,450 weekly attacks per organisation, marking a 4% year on year increase. In recent times, there has been a rise in the use of AI in cyber-attacks in South Africa. As a result, 58% of security leaders expect a different set of cyber risks in the upcoming five years, with 46% putting AI and machine learning as the top themes in the most significant cyber risks, according to the 2023 Global Chief Information Security Officer Survey.

Moreover, last year South Africa was put on the grey list by the Financial Action Task Force of countries that needed to do more to improve their ability to fight financial crime. Against this backdrop, the likelihood of South African insurers facing breaches has increased. With insurers continuing to handle more and more data, whether that be personal health records or financial information, the legal, financial and reputational consequences of a cyber-attack are likely to be even more severe.

This is coupled with growing regulation on data protection laws, including the Protection of Personal Information Act (POPIA), placing stringent requirements on the collection, use and storage of personal data in South Africa. Requirements include obtaining specific consent from clients before collecting or processing information and to limiting data collection to what is necessary for the purpose of providing the service. Non-compliance with POPIA can result in serious penalties, with fines of up to ZAR 10 million or imprisonment of up to 10 years.

Lastly, whilst using AI to access and analyse data to enhance decision-making will certainly benefit the insurance sector, this needs to be combined with in-house talent to build and maintain AI-driven systems. Without the right expertise among its employees, insurers will struggle to effectively implement AI into its processes which evaluate data such as risk modelling.

It is clear that the South African insurance sector is continuing to propel itself to a more data-driven future, and Big Data analytics will be at the heart of the sector’s transformation. Businesses that do not adapt to this are likely to get left behind. However, given the challenges that come with this, South African insurance firms must take a measured approach. This includes investing in robust cybersecurity measures and data governance policies that comply with complex legal standards. Examples include implementing tools to track and manage customer consent or setting up portals where clients can access and manage their personal data. Combining this with a pro-active AI policy, for example investing in training programmes or partnerships with universities to implement a pipeline of AI specialists in the long run, will be essential. Data and analytics offer a huge opportunity for the insurance and reinsurance sectors, but the winners will be those that best address the significant challenges that these bring.

You can read the original article on the FA News website

Change is rife in the insurance industry, as it struggles to get to grips with geopolitical and economic challenges and reflect the evolving risk environment in its pricing strategies. 

The sheer size of the challenge is difficult to overstate. Flooding in South Africa, in 2022, was responsible for ZAR 30 billion in damages, and more losses are likely, as the Notre Dame Global Adaptation Initiative index rated South Africa as highly vulnerable to climate change.

Growing competition 

Although rising premiums can do some of the heavy lifting as the industry accounts for greater losses, this comes at the cost of customer loyalty. Businesses across the country, also facing challenging circumstances, will look to reduce coverage or switch providers if they feel they are getting a raw deal.

It is in this context that Managing General Agents (MGAs) face growing competition from challengers and insurtechs. Many distributors are looking to some of the most disruptive trends in insurance to secure a competitive advantage, revolutionise their service offering and build stronger customer relationships. They are harnessing the power of Artificial Intelligence (AI) to better understand both their customers and the risks they face.

Leveraging AI

However, MGAs are well placed within the insurance industry to ride this wave of disruption, by leveraging the advantages of AI and combining them with the deep, granular understanding of their customers that a network of local underwriters can provide.

There are some obvious benefits from AI that MGAs should be looking to implement quickly. It can immediately help streamline distribution processes by automating tasks, giving underwriters and experts more space to make value-added decisions. Moreover, inquiries from potential customers can be handled automatically by AI, while its data analysis functions can be used to target the most profitable inquiries and create quotes quickly.

AI can also deliver efficiencies for customers, making it easier to access flexible products, as customisation does not necessarily rely on assessment by human underwriters. Because firms can use their resources more effectively to provide oversight of these processes, using AI in this way allows insurers and MGAs to expedite customers’ claims, as assessments can be completed automatically.

The technology can also be used to predict the probability and likely severity of a loss event, ensuring that customers can receive highly individualised, specialist cover. MGAs’ ability to offer highly targeted coverage will depend on their ability to leverage AI’s data collection and analysis capabilities, which can enable them to better understand their customer base and the level of risk that it’s facing. Used properly, the technology would be a powerful combination with local underwriters’ expertise and contacts.

The MGA space is constantly evolving

As systems read real-time data on customer behaviour and the risk environment, they can either raise rates to ensure better protection or drop them in response to falling risk. This will be a critical advantage for firms offering cover in sectors like cyber, where behaviour has a significant influence on how likely a significant loss is.

In sectors like agriculture and forestry, understanding past weather patterns, as well as mapping high-risk areas, will be critical to improving climate resilience, reducing insured losses, and keeping premiums competitive. Firms that can quickly and efficiently implement AI systems to collect, analyse and then use this data will be at a distinct advantage.

Within an insurance sector that is rapidly changing, the MGA space is constantly evolving, driven by growing customer expectations and technological innovation. 

Those who can adapt to these trends can succeed in an increasingly competitive landscape. Those who do not are at risk of being overtaken by the disruptors who embrace all the advantages that AI can bring to bear.

You can read the original article on the FA News website

For businesses across South Africa, customer centricity revolves around achieving client trust, loyalty, and satisfaction. However, in an age where customer expectations are continuing to escalate, meeting their ever-growing demands requires ever more innovation. 

With the rapid rise of digital services in other sectors, consumers expect tailored, fast and enjoyable experiences. There is, therefore, growing pressure for South African insurance and reinsurance businesses to provide high-quality services that keep pace with not only their competitors but also learn and adopt practices outside of the industry too.

The digital drive in the insurance sector 

Claims management is one of the key areas where insurance customers are demanding more. Following the shift towards a digital economy driven by the pandemic, clients are now expecting more from their providers when they have an insurance claim. This includes faster and more personalised responses, timelier payouts, and greater expertise. 

One of the ways insurance firms are responding to this trend is through automated loss adjustment. A combination of advanced technologies including AI are being used by insurance businesses to provide services that are far quicker than ever before. With the impact of floods, earthquakes and droughts increasing in South Africa, climate risk is one of the areas where loss adjustment automation has been used to a greater extent, minimising disruption for the customer. 

Faster payouts 

For example, some insurers are using drones to gather data on the damage caused by natural disasters as quickly as possible. AI is then used to provide real-time analysis, helping insurers rapidly confirm the scale of the damage, resulting in faster payouts to clients who have been impacted. In particular, parametric insurance is one of the insurance products that uses AI to automatically trigger payouts based on predefined climate-related parameters. As a result, if a parameter is met during a natural disaster, which may include a set amount of rainfall or several days with drought, the payout can be with the customer almost instantly. 

The use of parametric insurance has proven highly effective in maximising the protection of customers affected by these events. 

For example, the April 2022 KwaZulu-Natal floods, were one of the costliest natural disasters on record in South Africa, with 34 billion ZAR ($1.8 billion) in insured losses and 67 billion ZAR ($3.6 billion) in economic losses. In many cases, parametric solutions were used to ensure that funds were moved into the hands of those who had suffered losses from the floods in a matter of days, used by customers to accelerate recovery.

Improved accuracy 

Loss adjustment automation also provides customers with enhanced accuracy and fairness, reducing any human error or bias customers may have faced without it. AI can be used to analyse an extensive range of data points for claim evaluations, including historical data, the market value and specific details about the damage. The system’s ability to evaluate Big Data provides consistency in evaluations, ensuring that all customers are treated equally regardless of who handles their claims. 

This has been used effectively in South Africa not only when it comes to climate risk but in a variety of different areas. One of the most notable examples has been the use of automated systems during the pandemic to deal with the surge in claims related to hospitalisations and medical treatments. AI was used in many instances to analyse data including historical records, treatment plans and billing information to verify the claims, maximising accuracy for the customer and reducing the risk of mistakes. 

Loss adjustment automation is, therefore, playing a vital role in helping the South African insurance sector maximise customer centricity, ensuring that the consumer is provided with faster and more accurate payouts to their claims. As customer expectations continue to increase further, insurance businesses will need to keep up with other sectors and effectively use technology to meet these demands.

You can read the original article on the FA News website

MNK Re DIFC’s Mr Umair Ismail shares his thoughts on how the rise of AI is transforming insurance businesses in the MENA region – driving innovation, enhancing efficiency and reshaping the customer experience.

AI is set to play an essential role in not only disrupting but transforming industries across the globe. The adoption of the technology among businesses has risen dramatically this year, with the proportion of organisations globally using AI in at least one business function increasing from 55% in 2023 to 72% in 2024, having remained at around 50% for the previous six years.

When it comes to the insurance and reinsurance sectors in the MENA region, one of the biggest benefits of integrating AI into our services is that it allows insurance products to be tailored and personalised to the specific needs of the client.

Coupled with this, AI helps insurance businesses in the region to analyse real time data, ensuring that risks are managed more effectively.

This is most clearly demonstrated by looking at risks stemming from climate change – an issue that will continue to affect the region with extreme-weather events such as floods and droughts increasing with knock-on effects to major industries such as construction, a major part of the MENA economy.

AI helping in climate change and parametric insurance

The MENA region has seen a significant rise in natural disasters in recent years, with temperatures in the region increasing by 1.5 degrees Celsius over the past century, twice the global rise of 0.7 degrees Celsius.

Combined with this, precipitation levels are expected to continue to rise with studies revealing that the Middle East may experience a 30% increase in annual rainfall this century.

When it comes to climate risk, parametric insurance enhanced by AI technology offers a big opportunity. These solutions use AI to process and analyse historical data, climate models and satellite imagery to predict the likelihood and seriousness of extreme weather events in specific areas in the MENA.

This has allowed insurance products to be tailored to the specific needs of communities across the region vulnerable to the impacts of climate change.

Parametric solutions also use AI automatically to trigger payouts based on pre-defined parameters based on the climate. The payout can therefore be with the client almost straight away, ensuring that they receive their compensation as quickly as possible.

The recent devastating floods in Dubai, which caused widespread damage to a variety of properties, were a reminder of the importance of parametric solutions and AI in supporting individuals and businesses when extreme weather events take place.

Alongside climate risks, MENA has seen a rapid rise in construction risks over the last few decades. In Q1 of 2024, it was estimated that the construction projects market was worth $590bn or 15% share of the MENA’s total pipeline value of $3.9tn.

Whether it be Saudia Arabia’s mega project, Neom, or the UAE’s major Etihad Rail Project, insurance businesses have started to use AI to maximise protection from the risks involved in construction.

IoT

The impact of AI technology on construction insurance has been enhanced by combining the technology with the internet of things (IoT), referring to the transfer of data between multiple devices over the internet.

The revenue in the IoT market is projected to reach $30.6bn in 2024 in the MENA, with an annual growth rate of 10.21% from 2024 to 2029.

For example, some companies in the region have placed IoT sensors on machinery to track their operational status whilst AI has been used to analyse this data to project when the equipment is likely to stop working.

Furthermore, IoT sensors have been added to drones to take part in surveillant construction sites.

AI breaks down this data to highlight potential risks, track progress and analyse the conditions of the construction site. This is being used in a variety of construction projects in the region, to ensure more accurate risk assessment.

Construction workers can even use IoT wearable devices that can be embedded in clothing which include smart shoes, wristbands or helmets. These track a variety of data relating to health, location and work and productivity.

AI is used to analyse this information to detect any tiredness or exhaustion, triggering alerts to their managers if a worker is showing these signs. This is likely to decrease the chance of injuries and mitigate these types of risks.

With the average annual growth rate of more than 3% expected in the UAE construction sector between 2024 and 2027, the importance of using AI to minimise risk is bound to increase.

UAE leads MENA region in AI readiness

Whilst AI is set to enhance the services that the insurance sector provides, it is essential that governments have policies in place that allow these businesses to exploit AI and easily integrate the technology into their services.

When it comes to the AI readiness of governments in the MENA, the UAE is in the lead- ranked 18th worldwide in 2023. This is unsurprising given the important foundations the country has set to ensure it is prepared for this technology.

This includes not only releasing an AI strategy but appointing Mr Omar Al Olama as minister of state for the digital economy, AI and remote working system in 2017- the first country in the world to have a minister specifically responsible for AI.

The country’s strategy for AI aims to achieve the objectives of UAE Centennial 2071 – boost government performance at all levels and make the UAE the first in the field of AI investments in a variety of sectors.

There is a particular focus on education, with the UAE National Program for Artificial Intelligence partnering with the University of Birmingham in the UK to implement a programme aimed at providing UAE officials with the understanding and skills to become AI experts.

Domestically, they have also invested heavily in educating young people with the Mohamed bin Zayed University of Artificial Intelligence – a graduate research university dedicated to advancing AI.

Other countries in the region have followed, with Egypt adopting its AI strategy in 2019 and both Qatar and Saudia Arabia releasing their strategies in 2021.

Saudi Arabia is now planning to create a $40bn fund to invest in AI, to support a variety of tech start-ups.

Furthermore, Bahrain has focused on improving their data and infrastructure foundations, releasing its sixth National Telecommunications Plan, which outlines how the government will create resilient infrastructure to effectively implement technologies like AI.

AI is pivotal across all insurance businesses

The steps taken by the insurance sector in the MENA to integrate AI into its services are playing an important role in mitigating risks more effectively.

Whilst the growing need to use AI to help with managing climate and construction risks is clear, AI will be pivotal across all sectors for insurance businesses, ensuring that they enhance their offer to clients.

Collaboration with technology and InsurTech firms will only increase, reflected by the recent MENA Insurtech Summit in Qatar, which brought together top (re)insurance leaders, startups, insurers and InsurTechs from across the region.

Technological advancements within the insurance sector must also be coupled with action from the MENA governments, continuing investment in AI education, partnering with research and academic institutions and implementing the necessary enabling regulation.

You can read the original article on the Middle East Insurance Review website

With the global population, urbanisation and demand for properties continuing to grow, global construction levels are set to rapidly increase over the next decade. 

In 2023 alone, the construction industry contributed 2.7% to South Africa’s total GDP. Further, last year’s South Africa Construction Industry report revealed that the compound annual growth rate (CAGR) of the construction industry in South Africa is expected to be at 5.8% between 2023 and 2027, resulting in construction output reaching ZAR267 million by 2027.

The importance and value of this sector to the country’s economy has been made clear by the South African Government. Most notably, the Government’s National Infrastructure Plan 2050, announced in 2022, will pump over ZAR2 trillion into infrastructure development over the next few decades. 

AI and Big Data likely to revolutionise industries 

The insurance construction industry in South Africa is therefore well-positioned to benefit from the rapid growth in the sector. The industry, however, does face a significant challenge when dealing with the huge volume of data each construction project generates, 96% of which is going unused. With the recent rise in technologies that can analyse immense volumes of Big Data, construction insurance providers have been able to better harness this information, providing them with a greater understanding of project risks and allowing them to create tailored solutions for clients. 

The combination of Artificial Intelligence (AI) and Big Data is likely to revolutionise industries across South Africa, and the construction insurance sector is no different. The country is expected to show an annual growth rate (CAGR 2023 – 2030) of 20.64% in the AI sector, resulting in a market volume of ZAR162 trillion by 2030. Furthermore, South Africa was ranked the second highest country in Sub-Saharan Africa on AI readiness in the Government AI Readiness Index 2023, and the only country in Sub-Saharan Africa that scored above average in terms of technological capability. 

Tailoring policies to bespoke needs

The key benefit that Big Data will provide the construction insurance sector is it will allow insurers and brokers to tailor policies to bespoke needs. Investing in robust data collection mechanisms to collect data from a variety of sources, including historical claims data, Internet of Things (IoT) sensors, satellite imagery, weather forecasts and construction project management systems, will allow insurers to access previously untapped information. 

For example, when it comes to construction projects in South Africa, natural disasters including floods, droughts and earthquakes are serious risks for developers. Big Data analytics, however, allows insurers to analyse a wider variety of data sources than traditionally used, including geological surveys and weather patterns. Furthermore, Big Data allows the construction insurance sector to take part in real time monitoring and alerting. Construction insurers can leverage IoT devices to track construction sites in real-time, monitoring potential risks or changes from established norms. Currently, over 60% of Africa is covered by 4G mobile phone networks, and there are an estimated 570 million internet users. By exploiting IoT and creating automated alerted systems, construction insurers can receive notifications about anomalies or significant events in real time, allowing for rapid interventions to mitigate loses. 

Access greater expertise and data sources

Finally, the importance of collaboration in making sure that Big Data fully benefits the construction insurance sector cannot be forgotten. The construction insurance sector must make sure to enhance connections with construction industry stakeholders, such as contractors and engineers, to access greater expertise and data sources. Further, partnering with technology providers will ensure the sector stays up to date with the latest developments in Big Data and incorporate advanced technologies into their services.

You can read the original article on the FA News website

When asked about the biggest risks that the insurance industry needs to deal with, many in the sector will point to issues such as climate change. Its effects, through less predictable and more destructive weather events, are already being keenly felt in the property and casualty market.

This will undoubtedly be of huge importance to the industry for decades to come. However, over a shorter horizon, such as five years, geopolitical risk has arguably been overlooked as something that is going to demand ever more of the industry’s attention. The risk landscape is rapidly developing and reinsurers’ withdrawal from the market means that accessing coverage will become increasingly difficult.

Drivers of geopolitical tension

Growing geopolitical tension was predicted by many to be one of the major themes of 2024, in part, driven by the huge number of elections taking place worldwide. A third of Africa has held national elections, with South Africa’s General Election held on 29 May. Elections are also due to be held in nations where there is armed conflict, and so there is potential for tensions to become further inflamed.

Even beyond 2024, however, the most important drivers of geopolitical tension – the war in Ukraine, conflict in the Middle East and China-US relations – are likely to remain important factors in the market beyond the close of the year, shaping how underwriters assess their risk appetite.

The risk landscape is changing rapidly

In an environment where political risk is rising, the industry is facing higher insured losses. Civil unrest has been seen across the world in recent years, including in South Africa. For many, it has heightened the perception that risk is growing, and reinsurers have responded by withdrawing from the market. As conditions harden, insurers are having to pass higher reinsurance costs onto their customers. This cycle looks unlikely to be broken over the next five years.

Insurers’ sense of growing risk is not helped by the fact that the risk landscape is changing rapidly. The development of cyber terrorism, and the use of state-sponsored cyber-attacks, is something that the industry is having to get to grips with quickly. This has become more important as cyber-attacks are increasingly likely to produce physical damage.

The widening ambit of damage resulting from political violence has meant that insurers are reviewing terms and conditions and becoming more selective in what they will insure – many now refuse to cover NBCR (nuclear, biological, chemical, radiological) attacks. They are also limiting capacity for those regions they consider most exposed. In this context, the role played by brokers becomes more difficult but much more important, ensuring that clients get the coverage they need at a price they can afford.

National governments have also stepped in to ameliorate the situation. Many have established state-backed terrorism risk insurance pools or a government backstop for insured losses. In France, the Gestion de l’Assurance et de la Réassurance des Risques d’Attentats et Terrorisme (GAREAT) acts as a pool of insurers, with 70 insurers and reinsurers mandated to participate. In the US, the Terrorism Risk Insurance Program (TRIP) provides a federal backstop and encourages more capacity to be made available.

While these schemes can help, they cannot eliminate the struggle to access capacity. Moreover, they are not a solution to worldwide instability; in many of the countries where political violence risk is at its highest, no such equivalent scheme exists.

Navigating the market effectively

Brokers will, therefore, continue to play a vital role in helping companies to navigate the market effectively. They should work closely with clients to help them develop a thorough understanding of their exposure and coverage needs. Most importantly, they will need to leverage their knowledge and contacts to unlock capacity in a constrained market.

You can read the original article on the FA News website

What role can financial lines insurance play in addressing Kenya’s economic challenges

In recent years, we have seen the Kenyan economy face some serious challenges, most notably high inflation, growing cost of living pressures, and high public debt all compounded by global economic uncertainty. The recent Old Mutual Financial Services Monitor (OMFSM) revealed that financial strain on Kenyan households has continued into 2024. The average saving rate in Kenya stands at 12%, far lower than Africa’s average of 17%, with 59% of household income allocated to living expenses, compared to the continent’s average of 51%. Further, only one in ten Kenyan consumers are earning more now than they did prior to the COVID-19 pandemic.

As a result, when it comes to the insurance sector, with growing financial challenges for consumers, it is perhaps unsurprising that insurance penetration rates in Kenya remain low at around 2-2.5%, whilst the global average is around 7%.

Despite this, the insurance sector can play a pivotal role in Kenya’s economic recovery. In particular, financial lines insurance can provide the stability that businesses desire, developing economic resilience across numerous sectors.

Financial lines insurance protects businesses from financial losses. This includes covering the costs of legal action being taken against a business by third parties, cyber-attacks and commercial crime such as fraud.

By transferring these types of risks to insurers, Kenyan businesses can allocate their resources more efficiently, knowing that they are protected from potentially severe financial losses. This stability enables them to focus on their core aims such as creating employment opportunities or investing in growth. Start-ups, in particular, benefit from financial lines insurance coverage as it protects their founders from personal liability in the event of legal or business disputes. It enhances investor confidence in the business by providing reassurance that investments are protected against unforeseen risks, meaning they are more inclined to allocate capital to these firms.

As Kenya’s economy becomes increasingly digitised, cybersecurity threats also pose significant challenges to businesses, individuals and the Government. Last year’s July cyber-attacks on government online services and other platforms including e-Citizen, Kenya Power and Kenya Railways demonstrated the severe impact these cyber-attacks can have. Financial lines insurance products can help mitigate the impact of these breaches by providing coverage for expenses related to legal liabilities, regulatory fines and data recovery.

In order to ensure that these products play a role in providing stability to Kenyan businesses and the economy in 2024, awareness among Kenyan companies of these solutions must be maximised. The Insurance Regulatory Authority (IRA) is focusing on raising awareness of the products that financial lines insurance brokers can offer. Through consumer education programmes, newspaper articles and infomercials, the organisation has sought to make the public aware of the importance of financial insurance products and the reasons why insurance cover is needed.

The strength of the sector will also rely on the use of technology. The rise of insurtech firms in recent years has allowed insurance brokers in the sector to serve their customers far more effectively. The IRA, for example, has launched BimaLab, an accelerator programme to support insurtechs by accelerating the lifecyle of innovative startups, reducing years’ worth of learning into a few months. The most recent BimaLab Africa Insurtech Summit, held in Nairobi, brought together industry experts from the reinsurance and insurance and technology sectors to drive advancement of insurance technology. Programmes and events such as these have helped integrate cutting-edge technologies into the Kenyan insurance sector. This has helped support the use of AI in the insurance industry in Kenya, allowing insurers to analyse vast amounts of data and make data-driven decisions in real time.

We can see this across multiple lines in the insurance sector. For example, the Kenya-based insurtech firm, Pula, has been effective in using advanced technologies such as satellite data to help farmers across Kenya manage climate risk and improve farming methods, impacting over 15 million farmers across 13 African markets. Moreover, Kenya’s Lami Technologies, is another insurtech firm that received US$1.8 million pre-seed investment to improve its technology and increase its impact across Kenya.

With the Kenyan economy set to experience further challenges this year, the insurance sector, particularly financial lines, can contribute to providing stability in the face of these challenges for businesses across numerous industries.

You can read the original article on the Business Daily Africa website