The complexities of modern day underwriting

We spoke to Sujeeth Bishoon, executive and chief underwriting officer at Constantia insurance company about the complexities of underwriting in general.

Tony: Could you explain some of the factors that are currently impacting the complexity of underwriting?

Sujeeth: Perhaps the biggest contributing factor that impacts the complexity of underwriting is the unpredictability and evolving nature of risk. The environment in which we all live is always changing and so too, does the risk. Some recent examples include climate change, cyber risk and cyber fraud that has become a very real and serious issue in people’s lives.

Then, more recently, the COVID-19 global pandemic, impacting everyone’s lives. Other factors that also impact the complexity of underwriting include the use of technology, often used to gather or access different types of information, such as behavioural sensory data through telematics and, where it really gets complex, is translating that data through complex algorithm driven models, which help improve the accuracy of risk acceptance, ratings, and risk management. Then finally, the evolving customer needs and their expectations that has added to the complexity. This has resulted in an ongoing demand for personalised risk management solutions in this space.

Tony: It certainly has changed in complexity from a rate book to a client that varies completely in terms of complexity. So, what impacts have you experienced from events such as COVID and the riots in terms of underwriting, how has that impacted your underwriting process?

Sujeeth: Both COVID and the riots, have negatively impacted the returns for insurers as well as reinsurers and this essentially has resulted in what we call a ‘hardening’ of the market. What this means is that there is a reduced capacity in the market for this type of insurance cover and this consequentially results in more stringent underwriting criteria and premiums being increased. For example, most reinsurers, as well as insurers, have now excluded cover for pandemics in their treaties and policy wordings. We’ve also seen, effective from February 2022, SASRIA has implemented a large premium and rate increase following those claim losses that we experienced from the riots which took place last year in July.

Tony: Considering what you’ve said above, any tips or advice for brokers regarding their role in the underwriting process? Because obviously, the better the information and understanding that you get from them, the better you can assist them in terms of getting the best deal for their client.

Sujeeth:  Yes, absolutely. Brokers play a very important role in collating and clarifying the information that is sent to underwriters in the insurance proposal form. We rely on them for the completeness of information in terms of the description of the client’s business and the identification and quantification of some of those risks, and exposure levels. This is key to the underwriting process. But, I think, more so than ever before, brokers are positioning themselves with clients as risk advisors, so a lot more risk management advice is rendered by brokers to help them reduce or mitigate the risk exposures. This ultimately positively impacts the underwriting process.


So, this is probably the most obvious question for an underwriter, but what risk impact has Eskom and this period of new load shedding had on businesses and on individual’s, when it comes to risk?

Sujeeth: That’s a great question. In fact, as we speak, a lot of insurers and reinsurers are currently conducting various impact scenarios on this risk event, and we at Constantia are no different from other insurers in this regard. I think, before I get into it, you must essentially define or contextualise what do we mean by ‘blackout scenario’?

Firstly, it would mean that the country is impacted in terms of a large area, either provincially or nationally and they will essentially be having a total loss of power due to damage or the unavailability of power. This, at a minimum, would result in a power outage that could last seven or more days.

The possibility is that we could also see power being out for a month. It really depends on the different scenarios that the insurers and reinsurers model here. But essentially, the key risks that could intensify from such a catastrophe ,on businesses and individuals, include that business will be interrupted, key equipment and machinery and production processes will come to a grinding halt. This would most likely result in a food shortage being experienced in the country, as factories stop production or come to a halt. Furthermore, a lot of frozen goods in people’s homes and in businesses are likely to get destroyed or ruined. We would likely see an increase in robbery, theft, looting, especially if deterrents such as electric fences and alarm systems are no longer operational. We will likely see a spike in vehicle accidents (collisions) and write-offs   as traffic lights and street lights will not be operational.  A black out will not necessarily destroy all electrical devices, but some devices may be destroyed. In some circumstances a power surge may occur on attempts to return/reinstatement power to the grid. Water and fuel supply to most places would be affected as the pumps which rely on power and energy will stop working. Finally banking, communication and medical services will be negatively impacted.

So, the impact of a blackout scenario on businesses and individuals would be massive. Brokers can assist the policyholders here in ensuring that they have adequate cover for such prolonged exposures. For example, most commercial policies provide coverage for public utilities supply interruptions. This is normally limited but, on request to an insurer, the cover can be extended.