According to Statistics South Africa overall GDP grew by 0.3% in 2016. This is lower than the growth of 1.3% reported in 2015. Even though the main contributorsto the low GDP growth was the mining and quarrying industry and the manufacturing industry, the tough trading conditions are clearly reflected in the 2016 financial results reported by the short-term insurance industry (“the industry”) .The industry reported gross written premiums of R92.1 billion in 2016 an increase of 4.2% when compared to the R88.4 billion written in 2015.
Growth in the industry is being hindered by unfavourablemacro-economic factors, weather related disruptions and shrinking disposable household income due to increasing unemployment rates and increased inflation.
South Africa has not escaped the uncertainty that has clouded the global economic and political arena caused by the unexpected outcomes of the Brexit referendum and the US elections. This uncertainty together with the continued unrest in the Middle East has resulted in global GDP growth of below 2%, driven by the economies of the developed world (including the United States). China recorded disappointing GDP growth of 4%.
Extreme volatility in the Rand during the year, increasedinflation (creeping to 6.8%) and the risk of a possible ratings downgrade to junk status made trading conditions tough. The Rand appreciated by approximately 11.6% closing at R13.70:USD1. 2015 saw the extreme deterioration of the currency due to Nenegate – the biggest financial crisis South Africa has experienced since the advent of democracy resulting in half a trillion Rand being wiped off the value of South African stocks and bonds.
South Africa is facing one of the worst droughts to hit the region in 30 years. Mid 2016 a state of disaster had been declared in eight provinces as the drought continued across the country. Many small farmers are expected to go out of business as food production and prices increase, especially in the Free State province.
The unemployment rate in South Africa increased to 27.7% in the first quarter of 2017 from 26.5% in the previous period. It is the highest unemployment rate since the first quarter of 2004. With the average South African consumer becoming poorer due to the economic environment and rising unemployment, insurance products still remain a luxury product.
The strained South African economy has made growth in the insurance industry a sought after commodity. Premium rate increases to the customer are met with much resistance due to affordability constraints and with many digital platforms available, the customer can easily and quickly shop around for more competitive quotes and change its insurance provider in a few easy steps.
As a result the insurance company is forced to be innovative through partnerships, new products and the use of technology to stimulate real growth. We have noted a marked slowdown inpartnerships within other African territories when compared to 2014 and 2015. This is mostly as a result of a slowdown in expansion projects throughout Africa off the back of the slowing global economy and disappointing GDP rates reported by China.
Set out below is a short synopsis of some of the growth initiativestaken during the year.
Download the full synopsis
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