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SIMON BROWN: I’m chatting with Marthinus Visser, CEO of OUTsurance. Marthinus, I appreciate the time this morning. If we look at changing climate risks within the insurance industry, is it making it harder to do predictable risk management? Or is it maybe even a case that what we are seeing is that the unpredictable is becoming predictable because of its frequency?
MARTHINUS VISSER: Yes. Simon, no one can argue the numbers. It is so clear if you look at the last 20 years that we are having more weather-related claims. Now, I think there are driving factors. You have climate change, but you probably also have more urbanisation where you just have a bigger density of people and assets in vulnerable areas. These things compound, and it’s a gradual upward trend.
We model for it, but I think what has really brought it to the fore over the last two, three years is that the losses that the reinsurance market took caused them to increase rates – but also retention levels – materially.
And because of those much higher retention levels of your direct insurers like us, it brings more volatility into your results because the reinsurers have basically passed some of that risk back onto us. As they said, they don’t want to be exposed to such frequent events. Now it’s something we need to price for and allow for and model for.
I think the good news for South Africans is South Africa is not as severely exposed as Australia. They have many more people in low-lying areas close to water bodies. And what we see is that what used to be, for example, the 100-year floodline has now become the 10- or 20-year floodline. It simply does not make [economic sense] to rebuild properties once every 10 years or 20 years.
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The reality is you need a collaborative effort between insurers – but also governments and even banks – to relocate people [out of] the most vulnerable areas, but also to invest in mitigation, dams and infrastructure; proactive investment has been shown to have a much higher return than reactive, because insurance is really reactive.
It makes no sense to rebuild a place that’s going to flood completely every 10 years. In fact, given that your bond repayments are over 20 years, your insurance premium needs to be double your bond payment. It simply doesn’t make sense.
OUTsurance CEO Marthinus Visser. Image: Supplied.
SIMON BROWN: I take your point on that, and I take the point that it’s better to be proactive. Are these sort of conversations happening? I imagine in the one sense it’s with the person on the ground who owns the car or the home or whatever might be getting insured but, as you say, it goes all the way up to state level as well.
MARTHINUS VISSER: Those conversations are taking place, but it is a journey to convince everyone of the urgent need, and obviously the funds because it’s expensive to relocate people.
That’s the reality. The sins of the past – people built too close to flood lines and not enough was invested in infrastructure everywhere.
SIMON BROWN: Moving on to consumers, we’ve seen them under pressure. Does this also change the profile of how they respond to insurance? On a simple level it could just be an increase in the excess to save a bit on fees, or perhaps sort of cancelling insurance totally. Do you see much shift in consumers’ way of interacting with your insurance during the past couple of years?
MARTHINUS VISSER: Yes. We definitely see it – and I am specifically speaking to South Africa. You can see consumers are under pressure. You see down-buying, people buying older cars, keeping their cars for longer, buying smaller cars. You even see cover downgrades here and there. Fortunately, short-term insurance or property and casualty insurance is less discretionary.
If you have a car now [and] you really care about [it] you try to provide for that within your budget. I think some savings or life products are a bit more discretionary, where people might give them up before they give up this, so overall we’ve seen quite resilient lapse experience.
But no doubt consumers are under pressure and that’s also why product design is key to make sure core cover remains affordable and maybe you need to look at some of the bells and whistles which are not that essential, and let go of those to make sure you can keep the core cover affordable.
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SIMON BROWN: I take your point. Maybe it’s around the consumer just, as you say, shopping more carefully for a cheaper car. It’s cheaper to insure; it’s cheaper to pay for as well.
A last question. Ireland is your new market. Of course you have South Africa, you’ve had Australia for a couple of years now. Ireland is the new market – very, very early days there. What sort of stage of that process are you in at this point?
MARTHINUS VISSER: Simon, we obtained our full licence and it has been quite a complex process if you consider what it was like 26 years ago with OUTsurance South Africa. But we are glad to report we have our full licence.
We have a high level of readiness in terms of our systems, which we built ourselves. We have 60 people on the ground there. So [the] launch is imminent and we plan to have our formal launch in the next quarter.
SIMON BROWN: Is modelling, in terms of risk and the like, a plug-and-play? [Can] you take South Africa and drop it into Ireland? I appreciate that you mentioned fires in Australia. We don’t really have that in South Africa. We haven’t got so much low-lying [ground]. But is insurance modelling broadly the same, or is it a completely different game as you move markets?
MARTHINUS VISSER: The principles are the same, and we deliberately select markets that are fairly similar. Ireland has a big direct market, a big car market, so it plays to our strengths. That’s why we specifically chose Ireland to have markets where we can transport our strong points.
One thing which is different in Ireland is that bodily injury is covered by standard cover, whereas in Australia it’s a separate product. In South Africa it’s covered by the Road Accident Fund. But the principle of risk selection and managing risks – that’s the same, and you need to apply it everywhere.
SIMON BROWN: We’ll leave it there. Marthinus Visser, CEO of OUTsurance, I appreciate the early morning.
