Old Mutual flags possible insurance exodus

• Financial services group revises policies in response to load-shedding and climate change

Financial services group Old Mutual says it could see an outflow of customers after amending the wording of some of its insurance policies in response to load-shedding and climate change.

The group said in its 2023 annual report that the rewording of some of its policies to exclude certain events might lead to consumers opting for cover with its rivals.

In response to “prolonged” load-shedding, power surges and the possibility of a national grid failure, the company said it had reviewed and updated the insurance policy wording in some of its portfolios.

“We believe our response is appropriate to the risk environment where claims related to the electricity crisis have increased. These updates are expected to have some negative impact as some customers might elect to move to competitors,” it said.

The annual report also states that the increased frequency and severity of extreme weather events are challenging for the industry, and the group is working on improving its claims process, refining policy wording, upgrading its IT infrastructure and reviewing product and reinsurance pricing.

“Challenging socioeconomic conditions, such as high inflation, continue to put pressure on our claims costs and place consumers under strain, adversely impacting our ability to retain existing customers and attract new business,” it said.

FLOODS AND STORMS

“The increased severity of weather-related events continues to put pressure on our profitability due to the high value of claims payouts and higher reinsurance pricing.”

Old Mutual Insure (OMI), which has about 483,000 policies, paid R7.5bn in claims in the 2023 financial year, up from R5.1bn in the prior year.

OMI’s retail business, which includes its commercial and personal business portfolios, was hit by large weather-related claims from the Western Cape floods and Gauteng hailstorms.

The speciality business, which caters for niche markets such as corporate property, engineering and marine, was not immune to weather-related claims either, particularly from the Western Cape flooding and Gauteng hailstorms, “coupled with large corporate property damage claims”.

“We plan on reviewing and redesigning the speciality reinsurance programme during the year, to better manage risk retention and net underwriting results,” it said.

Some of the priorities for OMI this year include improving its short-term weather forecasting models to improve its understanding of and response to weather patterns and events.

The business also wants to grow its offering and market share in “under-indexed insurance classes”.

Carolyn Thompson, executive of retail product, underwriting, and pricing at OMI, said the business had found it too expensive to provide cover for certain events due to the much higher probability of those events occurring. She mentioned power interruptions, load-shedding and severe weather events and the claims that stem from those incidents as examples.

AFFORDABILITY

“As a result, we’ve made certain changes to our policies. In some cases, such as a power surge after load-shedding, we have removed the cover from our core commercial and personal lines policies but have added an extension that clients can choose to purchase,” Thompson said.

“This means where affordability is less of an issue clients can keep the cover. However, where clients would prefer to keep monthly premiums to a minimum, the cover has been removed.

“In other cases, we have introduced further risk sharing by introducing higher excesses. This allows us to keep our premiums cheaper due to the client paying for a bit more of the loss than what they previously would have.”

On grid interruption, Thompson said there was very little cover in the insurer’s previous product for such an event, but this had been clarified to avoid any misunderstandings at the claims stage.

“Most of our cover changes were implemented in the middle of 2023. We held multiple webinars with our brokers to ensure the changes were properly understood and could be properly communicated to the customers,” Thompson said.

WHERE CLIENTS WOULD PREFER TO KEEP MONTHLY PREMIUMS TO A MINIMUM, THE COVER HAS BEEN REMOVED

“We have also made changes to all our letters that go to our customers at renewal to ensure that they are fully aware of the changes we are making and the choices they have in the cover provided.”

Carolyn Thompson Old Mutual Insure