How VAT hikes and global trade uncertainty are squeezing South Africa's insurance sector

The short-term insurance industry is facing increased pressure from two directions: proposed domestic tax hikes and global trade uncertainty. Taken together, these developments are likely to deepen financial strain on policyholders while simultaneously threatening the growth and stability of the insurance sector itself.

The Finance Minister’s proposal to incrementally increase VAT – from 15% to 15.5% in 2025 and then to 16% in 2026 – will directly affect the cost of financial services, including short-term insurance. Insurers have begun giving notice of increases to policyholders, given that VAT is a compliance requirement (and thus does not provide them with additional revenue). The result: higher premiums for policyholders at a time when household incomes are already under pressure from sub-inflationary wage growth and rising living costs.

For businesses, the situation is no less complex. Earlier this year, the United States announced a 31% tariff on South African exports, since paused for 90 days but with a 10% flat-rate tariff still in effect. These tariffs erode the benefits previously enjoyed under the African Growth and Opportunity Act (AGOA), making South African goods less competitive in the US market. Businesses are now facing tough choices: absorb the cost, raise prices, or cut expenses somewhere.

Short-term insurance is often viewed as a grudge purchase – important, but ultimately expendable when budgets are tight. This places insurance in the firing line when businesses look for ways to reduce overheads and protect profit margins.

The consequences are likely to ripple through the broader insurance industry. Short-term insurers rely on robust economic activity, especially in manufacturing and exports, to drive premium growth and policy retention. A slowdown in production or the withdrawal of South African businesses from international markets could lead to reduced cover levels, cancelled policies, or increased claims volatility.

At a macro level, this contributes to a broader economic dilemma. South Africa is a small, open, consumption-led economy. We import more than we export, which leaves us with a trade deficit. When exports decline – either due to punitive tariffs or declining competitiveness – our balance of payments weakens further, adding to the fragility of the rand and dampening investor confidence.

The net effect for insurers is a shrinking pool of insurable economic activity, heightened policyholder risk, and pressure on margins. For policyholders, it means navigating a shifting landscape where prices rise, coverage narrows, and the fine print becomes ever more important.

Now, more than ever, sound financial advice matters. From navigating VAT-related increases to reassessing business risk in a volatile trade environment, the right advice can be the difference between surviving the storm and being overwhelmed by it.

In uncertain times, insurance may be one of the first expenses to face the axe. But in uncertain times – and coupled with the right guidance –  it is one of the most valuable weapons of defence in your arsenal.

Gezane is a franchise development manager at Consult by Momentum.

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