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Why Has Insurance Become So Expensive?

Five reasons why insurance premiums have doubled over the past five years.

While many products and services have seen steep increases over the past five years, the increase in some costs – such as insurance premiums – have been more noticeable on the pocket.

Let’s look at some of the factors driving these increases.

Claims frequency & Severity

Insurers operate on a principle of insurance that is very simple, where they pool premiums from many clients with exposure to similar risks and pay for losses experienced by those clients in the same category.

For insurers to be profitable, they work on acceptable loss ratios ranging from 60% to 70% between collected premiums and claims paid. These loss ratios have been on the increase due to a substantial increase in the frequency and severity of claims paid in the past five years. Think about the flooding in KZN, the national drought and the raging wildfires in the Western Cape.


The average cost of claims has considerably increased over the past couple of years due to technological advances, the cost of materials used to make products more durable, complex and expensive repair methodologies, modern methods of construction, more technical expertise requirement to be compliant and increasing building rates.

The Consumer Price Index (CPI), which is intrinsically lined to these increases has, for example, increased from 85 index points in 2014 to 105 index points in 2018.

Economic Downturn

South Africa’s tough economic conditions have placed an enormous strain on businesses and consumers which means they’re no longer able to carry higher excesses which automatically pushes premiums up.  Added to this, during tough economic conditions there’s often an increase in the number of bankruptcies and liquidated companies, or people and companies reduce or cancel insurance cover to try to survive. This ultimately reduces the pool of clients paying premiums and results in clients paying higher premiums.

Extreme Weather Conditions

Recently, South Africa’s experienced an increase in the number of catastrophic losses due to extreme weather events affecting homeowners and businesses and ultimately, the insurers.

Changes in Legislation & Regulations

One of the biggest factors on the cost of premiums is that the regulatory environment has become more stringent and, to comply, businesses have had to incur more costs.

For example: a huge proportion of the commercial property insurance market is dominated by real estate, and with an increasing requirement for well designed, environmentally friendly properties and building methods, fire-resistant properties and energy efficient properties have fortunately reduced premiums from a risk management perspective.

However, the cost of the materials used and technical expertise required to build and manage these properties has been increasing and insurers utilise these high values to charge premiums on these properties.

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