South Africa's short-term insures are feeling the pinch, as small companies are falling behind in in paying their insurance premiums. In addition, many small and medium enterprizes (SMEs)in South Africa have closed their doors as a result of the recession and the global economic crisis.

One of the insurance companies that has seen a drop in revenue is Mutual & Federal (M&F). According to the company's MD Keith Kennedy, these developments are a serious cause of concern. "SMEs are struggling and they may not be able to pay their premiums," he said in an interview with Business Report.

M&F said that in the first quarter of this year, the group's commercial business had seen an increase in the loss of insurable enterprises. Kennedy added that the unit had suffered following large commercial and industrial fires, mainly in the first quarter, such as the major factory fire in Paarl earlier this year.

M&F's claims ratio rose from 71.4 percent to 73.1 percent this year after commercial and fire claims in the first half. M&F's gross premium income fell 7 percent to 4.3 billion rand, after the insurance company decided to cancel unprofitable businesses last year.

Santam has said it experienced similar problems and that it is battling to achieve the correct premium rate increases for SMEs."These small and medium enterprizes are struggling because of the economic downturn. Now we are often left with two choices which do not contribute to sustained profitability of the company," Santam's CEO Ian Kirk said. "We either lose the business or retain the business with low premium rates."

Source: Business Report