Santam Adopts AI-Driven Geocoding to Enhance Disaster Risk Management

As climate change continues to heighten the risk and frequency of natural disasters, South African insurance heavyweight Santam is adopting artificial intelligence (AI) to bolster its risk management capabilities. The company has developed the Santam Underwriting Viewer, a geocoding initiative that employs Geographic Information Systems (GIS) technology for enhanced assessment and underwriting of property risks.

The integration of this novel tool allows Santam to overlay geocoded addresses with scientific data sets, assessing susceptibility to various perils such as floods, hailstorms, and fires at precise locations. This enables underwriters to apply specific policy conditions relevant to the identified risks. The technology not only aids in fine-tuning premiums but also ensures policyholders receive coverage options that acknowledge their unique risk profile.

Financial figures reveal the pressing need for innovation in risk management. In the 2023 financial year, claims from floods in the Western Cape and hailstorms in Gauteng resulted in losses of R403-million and R180-million to Santam, respectively, while fire claims rose to R422-million. Santam's Chief Risk Officer, Charisse Ras, underscores the geocoding tool's role in proactive risk management, emphasizing its utility in working with policyholders to devise strategies for risk mitigation, potentially affecting insurance terms and excess requirements.

The significance of technology in insurance is underscored by the increasing adverse effects of climate change, with South African insurers paying out billions in the last decade due to damages from severe weather events. Insurers are now accepting the reality that harnessing technology, particularly geospatial data, can play a pivotal role in lessening risk and securing the enduring provision of insurance.

The peril presented by natural hazards is not lost on Santam. In April 2022, KwaZulu-Natal experienced catastrophic floods, marking the most expensive single-flood event in Santam's 105-year history, with the company disbursing R4.3-billion in claims. The incident was particularly destabilizing, resulting in R17-billion in damages to the province's essential infrastructure and is a stark reminder of the lasting repercussions of such natural catastrophes.

Santam's AI strategy is part of a broader suite of risk reduction tactics, which includes enhanced risk assessments and differentiated premium adjustments based on changing risk landscapes. The tech-driven approach complements traditional methods such as updating deductible amounts and boosting security prerequisites for high-risk possessions, such as a mandate for multiple tracking devices on high-value vehicles in specific regions.

The anticipated outlook, according to Ras, foresees a reprieve for policyholders with projections leaning towards single-digit premium increases in 2024, a shift from the prior year's double-digit escalations. However, on the corporate side, Santam's Group Chief Executive, Tavaziva Madzinga, paints a more complex picture of the challenges ahead. Factors like sluggish economic growth, inflated levels of inflation and interest rates, and the global spike in reinsurance costs, compounded by international disasters like the Türkiye earthquake, are hurdles that Santam, and the insurance industry at large, have to surmount, while still ensuring shareholder returns.

In conclusion, Santam’s endeavor to assimilate AI into its risk management strategy is a testament to the industry’s innovation in responding to the multiplex challenges posed by climate change. The move is expected not only to foster resilience in South Africa's insurance sector but also to safeguard the interests of policyholders facing an uncertain environmental future.