Santam warns about new threat to South African businesses

South Africa’s largest short-term insurer warned that cybercrime poses a substantial financial risk to local businesses, and the country’s insurance industry is not equipped to deal with this threat.

Santam explained in a recent research note that, in South Africa’s business landscape, data is currency.

“The ability to collect, analyse, and harness insights from vast amounts of information – big data – is transforming industries worldwide. And insurance is no exception,” the insurer said.

South African businesses face unique challenges, including economic instability, load-shedding, and social unrest. This creates a volatile environment that traditional insurance models struggle to keep up with.

The industry has come under pressure in recent years due to a significant rise in life insurance claims during the Covid-19 pandemic, followed by the July Riots in 2021 and severe weather events. 

While the pandemic and the July Riots can be seen as once-off events, extreme weather events have become more common in South Africa, leading to millions of rands in damages. 

“Moreover, the surge in cybercrime poses a significant threat,” Santam warned. 

“South Africa consistently ranks among the countries with the highest costs associated with cybercrime, with attacks against businesses becoming increasingly sophisticated and damaging.” 

“From ransomware to data breaches, the financial and reputational harm caused by cyberattacks can be crippling, particularly for small to medium enterprises.”

Santam explained that cybercrime poses a substantial financial threat to businesses in South Africa.

“The country has experienced a rise in cybercrime incidents, with an estimated annual impact on the economy amounting to R2.2 billion, according to CSIR’s recent findings.” 

“This cost includes expenses related to data breaches, ransomware attacks, and other cyber incidents, leading to substantial financial losses for businesses.”

South Africa’s unique socio-economic landscape, which is characterised by high poverty and unemployment, makes businesses and individuals especially vulnerable to cybercrime. 

“The lack of adequate cybersecurity measures, such as multi-factor authentication, backup processes, and employee awareness training, exposes businesses to significant risks and vulnerabilities that can be exploited by cybercriminals,” the insurer explained.

“Our recent study revealed that, despite the escalating data breach costs and cyber risks faced by businesses, the adoption of cybercrime insurance in South Africa remains relatively low.”

“Only around 26% of commercial respondents have cybercrime cover in place, indicating a gap in insurance protection against cyber threats.”

Large businesses and corporations are more likely to get cyber insurance, while many small and medium enterprises (SMEs) are hesitant because they think cyber incidents won’t affect them.

“It is crucial for businesses to implement cybersecurity measures, conduct risk assessments, and provide comprehensive training to employees to mitigate cyber risks and safeguard sensitive data,” Santam explained. 

Opportunities

While cybersecurity does put the industry at risk, Santam said that big data also carries many opportunities for various business sectors.

Firstly, it leads to improved decision-making by taking raw data and transforming it into valuable insights.

“Big data analytics transform raw data into actionable insights. Companies gain a deeper understanding of their customers, markets, and internal operations, enabling data-driven decisions that promote efficiency and profitability,” the insurer said.

With the use of data, businesses are also able to personalise consumers’ experiences. 

“Customer data reveals trends in preferences and behaviours. This allows businesses to tailor products, services, and marketing messages, fostering greater customer loyalty and increased revenue,” Santam explained.

In addition, big data makes it easier to enhance operational efficiency, as analysing processes and supply chains through big data allows for the identification of bottlenecks and waste.

This allows companies to streamline their operations, optimising productivity and reducing costs.

Finally, the technology also helps with predictive analytics and risk mitigation. 

“Patterns detected in large datasets can help with forecasting sales, predicting equipment failures, or anticipating potential supply chain disruptions,” Santam explained.

“This proactive approach empowers businesses to mitigate risks and minimise losses.”

While the insurance industry has been somewhat slower to fully embrace the big data revolution compared to industries like eCommerce or finance, Santam said that the potential benefits are undeniable.

First, it has advantages for underwriting, which often relies on a limited set of historical data. 

“Big data, combined with advanced analytics, enables short-term insurance companies to incorporate diverse data sources, including real-time information.” 

“This leads to a more granular and accurate assessment of business risks, which gives companies a more tailored and fairly priced premium.”

Machine learning algorithms, which can analyse vast datasets to identify patterns or anomalies that might indicate fraudulent claims, also facilitate fraud detection and prevention.

Customers benefit from more value and an enhanced experience as well. 

“Business insurance policies are often complex. Big data enables personalised recommendations, proactive risk mitigation advice, and streamlined claims processes,” Santam said. 

Big data fuels innovation, too. By analysing market trends, emerging risks, and customer feedback, insurers are able to move forward through technology and innovation in the insurance space. 

This includes developing new and niche policies that address evolving business needs, such as cutting-edge cyber insurance products, and embracing “insurtech” for an even better user experience.

Overall, Santam said big data represents a paradigm shift for the insurance industry. “Although there are challenges to navigate, the potential benefits are undeniable.” 

Insurers who strategically embrace big data are able to better understand their clients, manage risks effectively, and deliver superior value to their business clients while fostering true innovation in the insurance sector. 

“Business owners and leaders in South Africa need comprehensive business insurance solutions more than ever,” Santam said.

“As big data technology continues to evolve, we can expect even greater levels of personalisation, risk prediction, and product innovation in the business insurance space, offering an essential safety net for businesses to thrive amidst uncertainty.”