South African Reserve Bank (SARB) Governor, Lesetja Kganyago, received the rarely awarded Insurance Institute of South Africa (IISA) presidential honour award during the opening session of the 2022 African Insurance Exchange (AIE 2022) conference, held on 25-26 July 2022 at Sun City Hotel and Conference Centre, South Africa. The award was given in recognition of value of strong leadership in ensuring resurgence, resilience and revival in the post-pandemic financial services environment.
“In extending this recognition, it is necessary to also acknowledge what is happening at the Financial Sector Conduct Authority (FSCA), National Treasury, Prudential Authority and SARB,” said Themba Baloyi, speaking in his capacity as president and chairman of the board at the IISA. “There is the kind of leadership that many of us are not privy to, which I have been fortunate to witness first-hand… it is a strong kind of leadership led by special leaders such as the Governor.” Each member of the audience was encouraged to lead by leveraging their access, influence and power within their respective contexts. In this regard, Mr Baloyi noted that the purposeful and selfless application of these core values, in service of others, could make all the difference to the resilience and sustainability of a business, industry or country.
Mr Kganyago accepted the award on behalf of the “2000 good men and women of the SARB, who through their daily work help us ensure our mandate of financial stability”. He also acknowledged the critical role that the non-life insurance sector played in the domestic economy. Quoting from a paper by the Geneva Association, titled ‘The social and economic value of insurance’, he explained: “Insurance should be perceived not only as a protection mechanism, but more importantly as a partnership that allows individuals and businesses to spread their wings and go where they might otherwise not have dared to go.”
The SARB Governor covered a range of topics during his brief acceptance speech, starting with the multiplicity of factors that had forced the central bank’s hand in hiking interest rates by another 75 basis points in early July 2022. He added that the factors that were driving interest rates higher and constraining economic growth were also introducing heightened risks to the country’s non-life insurers. These factors included renewed pandemic lockdown in China; the Russia-Ukraine war; and supply chain bottlenecks and disrupted food and energy markets. “The combination of these adverse shocks will slow down global growth, noted Mr Kganyago. According to the Governor, there are five recent events or developing themes that will define the development of South Africa’s non-life insurers going forward. These include:
- Climate-related risks and opportunities: “We can no longer ignore the impact of climate change as the impact of climate-related events have become palpable over the last few years, locally and globally,” said Mr Kganyago.
- The KZN floods: Billed as a once-in-25 years event, left thousands of South Africans destitute, and businesses facing significant losses due to loss of profit and property damage; but also highlighted the large gap between economic and insured losses. Non-life insurers, as an integral part of a country’s response to natural catastrophe, were challenged to innovate to improve insurance coverage to low- and mid-income households, and thus expand their protective reach.
- Business interruption (BI) response to Covid-19: The industry was commended for its response to the Covid-19 pandemic, despite the initial hiccup as insurers sought clarity about their exposures through the courts. The Governor was, however, scathing, about what he perceived as “significant mis-steps in managing insurer risk” surrounding BI and contingent BI coverage. He was also concerned about the subsequent withdrawal of non-physical damage BI cover which left a significant protection gap in the market.
- July 2021 riots: South Africa’s non-life insurers were again applauded for their role in recovering from the looting and rioting that afflicted areas of KwaZulu-Natal and Gauteng in July 2021. The Governor challenged the industry to develop products and solutions that provide better protection from similar shocks.
- Cyber risks: Mr Kganyago spent some reflecting on the risk presented to the non-life insurance industry by cyber risks. He mentioned a range of initiatives being undertaken by the South African regulators and the International Association of Insurance Supervisors (IAIS) to design a regulatory approach to the emerging risk category and reminded all present that compliance with the eventual Prudential Standards on Cyber Security and Resilience, and the application of best practice in this regard, were non-negotiable.
“The financial sector as a whole has remained resilient,” concluded Mr Kganyago. “Despite the multiplicity of shocks over the past two years, we will continue to collaborate with the FSCA and industry to enhance the resilience of the sector… the SARB, like many of you at this conference, remain resolute in contributing to resurgence and resilience.” And that, dear reader, tied in nicely with the conference theme: ‘Resurgence, resilience and survival’.