To remain relevant and resilient in today’s heightened risk environment, the insurance industry must refocus on sustainable pricing, improved claims efficiency, and smarter risk management. Striking the right balance between protecting policyholders and ensuring the long-term viability of insurance businesses is essential — especially as the protection gap continues to widen.

By Charles Nortje, Managing Director of Old Mutual Insure

The year 2025 has started on a strong note for the insurance industry, even in the face of persistent headwinds. If anything, the events of the past few years have reshaped how we think about risk. We’ve weathered COVID-19, the 2021 riots, and a tough period of under-pricing.

But today the non-life insurance sector finds itself at a crossroads. As the frequency and severity of systemic risks escalate — from climate change and political instability to economic stagnation, global trade tensions and healthcare pressures — insurers must carefully consider how they respond. The question is no longer simply how we manage risk, but whether our response enables business sustainability or compounds vulnerability.

Nowhere is this more evident than in the growing use of sophisticated climate modelling to assess and price flood risks. These tools enable us to map inundation risks in vulnerable areas with precision, including along South Africa’s eastern coastline. However, when such insights result only in punitive premium increases or withdrawal of cover, the industry risks alienating the very clients it exists to protect.

The purpose of advanced modelling must go beyond safeguarding insurers’ financial stability. It should be deployed to empower policyholders and communities. For instance, insurers can provide early warnings to clients ahead of storm systems making landfall, drawing on satellite-based data to improve disaster readiness. The focus must shift from reactive underwriting to proactive risk mitigation — a position that is both commercially sound and socially responsible.

There is also an opportunity to refine our pricing models. Clients should no longer be subject to broad cross-subsidisation that masks the true nature of their risk exposure. A fairer approach would differentiate appropriately between high- and low-risk policyholders, while providing those in vulnerable zones with the tools and support needed to reduce their risk over time.

However, for this to happen, industry and customer data needs to become more granular. As such, partnerships are going to become critical. Insurers need to look at this through a customer lens – if there are benefits and cost-savings then these should be passed on to policyholders.

Similarly, public-private collaboration will become even more necessary in a changing risk climate. A case in point is SASRIA: We recall in 2021 the large-scale riots that spread from KwaZulu-Natal to Gauteng. SASRIA paid out about R32 billion to cover the riots , which caused great financial strain on the organisation. Today there remains significant insurance protection gaps for which the state cannot reasonably shoulder the responsibility alone. Nor should it. We want to help solve the protection gap issue. The insurance sector is well-positioned to contribute the technical expertise, thanks to its investment in technology, particularly around pricing and modelling complex risks, while working with State-owned entities to build sustainable solutions and strategic partnerships with government.

Healthcare presents another challenge. With rising medical inflation, an ageing insured population, and growing levels of chronic illness, the strain on medical gap cover has intensified. At the same time, progress on implementing the National Health Insurance (NHI) is likely to be slow. This presents an opportunity for the non-life insurance industry to engage constructively with policymakers to design low-cost, good-value medical insurance products for the uninsured population. However, insurers cannot step in to provide critical products without government. Regulatory support will be key to unlocking this potential to help fill the gap.

As insurers, we are also constantly thinking about the operating environment globally. The threat of US trade tariffs from the USA could significantly impact South Africa’s growth trajectory – and by extension, the insurance industry. Tariffs may put further pressure on sectors like automotive manufacturing, which is closely linked to the insurance industry through claims, parts, and repair costs. Most insurance companies are using technologies like the Cloud and the adoption of AI; if the cost of doing business increases, then the cost of insurance will inevitably rise – particularly as we face dollar-denominated expenses, higher licensing fees, and inflation, especially in a low-growth environment like South Africa’s.

We remain committed to supporting our policyholders, even in regions where risks are heightened — a contrast to some global insurers that have exited high-risk areas, as we saw in the aftermath of the Pacific Palisade fire earlier this year. It is not in our nature to leave our policyholders high and dry. In South Africa, we believe there's a better way — one that involves working alongside our clients to manage risk, not turning our backs on it.