Covid-19 and the insurance industry

When we started the year, who could have guessed the year 2020 would see a virus that would change our lives in a way we could never have foreseen. Over the past few years, there has been talk of the 4th industrial revolution, brought about by a technology revolution. Many organisations, whether they liked it or not, were thrust into the 4th industrial revolution and we learnt just how important technology has become in our lives. Gone are the face to face meetings. Microsoft Teams, Zoom and Skype meetings are the order of the day. The pandemic has and will continue to impact on our lives for some time to come. Large scale trials for a vaccine are underway and the world waits in hope for a solution to allow us to return to our normal lives.

We have all heard the dramatic impact the virus has had on the South African and world economy. Stock markets dropped by 30% in a few days and the world was in a state of panic. Countries around the world announced their lockdown regulations, schools closed, numerous businesses were forced to close their doors, while others were forced to review their business processes to work from home and those organisations deemed to be essential services had to very quickly develop policies and processes to protect their employees and customers.

South Africa’s lockdown regulations declared the financial services industry an essential service. Most of the industry heeded the President’s call to stay at home and used technology to continue their operations. But, how has COVID-19 impacted the insurance industry?

Insurance companies should be able to cover their policyholders for normal day-to-day claims, as well as in times of crisis. They are required to hold reserves and have reinsurance contracts in place to help them meet large claims and a large volume of claims. However, even with these measures in place, the outbreak of the virus has and will continue to impact the industry. The extent of the impact has and will largely be dependent on the sector within the industry.

Insurers and FSPs involved in the investment/pension fund sector were the first to feel the effects; even before the spread of the virus in South Africa. The sudden and significant decrease in the stock markets reduced revenue and resulted in retrenchments. With businesses being closed during the lockdown, there was an increase in the number of claims against business interruption policies. The diagnosis and treatment of COVID-19 have been added to the PMB list for medical schemes. As the number of infections and hospital admissions increase, there will be an increasing strain on medical schemes. Health insurers providing hospital cash benefits, primary care, etc., can expect a similar impact.

Most insurers will experience a delayed impact on their operations and profitability. Within a few weeks of the lockdown being introduced businesses started retrenching people or cutting employee salaries. Many insurers would have experienced an increase in cancellations. The opening of the economy with the easing of restrictions has helped to ease the impact of cancellations on insurers, however, there are still some industries not able to operate and more and more policyholders will find it increasingly difficult to meet their monthly insurance premium payments. Despite the opening of the economy, with the increasing number of infections, we will see companies finding it increasingly difficult to maintain their normal operations with their staff members being infected and some companies may even be forced to discontinue operations. So, we are likely to see further retrenchments and an increase in the number of policy cancellations.

Insurers providing health insurance, funeral and life cover are likely to be the least impacted by cancellations in the industry, due to the nature of the crisis. Policyholders have a fear of contracting the virus and the possibility of death and these fears will ensure policyholders view these types of policies as being essential. These insurers may even see an increase in demand for their product.

During these uncertain times, customer service becomes more important than ever. There are many policyholders experiencing hardship and if we can help them by providing good service, they will appreciate our efforts. Be proud of being part of an organisation that is truly making a difference in people’s lives, especially in these difficult times.

In the absence of a vaccine, COVID-19 will only be eradicated if we all adhere and follow the published precautionary measures. When Professor Salim Abdool Karim (the head scientist on the National COVID-19 Command Council) was asked whether South Africa would reach the 40,000 deaths the statisticians are predicting, he responded that he hoped not and used New York as an example. When the infection rate and death rate increased, people saw the importance of taking the necessary precautions. Is that not a sad inditement on how many people respond? Why do we wait until it becomes personal before we react? Some believe that they are either young and/or healthy and even if they get the virus, they may be a little sick for a while. Others are just in denial and don’t believe they will get the virus. No or very little consideration is given to the people around them, who may not be young or have an underlining condition. Such a person may become very ill and even die. How would you feel knowing you contracted the virus through not taking proper precautions and infected someone else who becomes ill or even dies? Let’s all do the right thing and follow all the required precautions. Influence those around you who are not following the precautions and explain the seriousness of not complying. We can all play a part in fighting the virus. The advantage we have now over outbreaks in the past is the use of technology. We have scientists using technology in the development of treatment drugs and a vaccine. The harmful effects and precautions are being communicated through a myriad of communication platforms, ensuring the message reaches rich and poor, people living in the cities and those living in remote places. Technology is allowing us to work remotely. History has shown epidemics/pandemics come and go. COVID-19 will also one day be a thing of the past.

Stay safe and stay strong.

Séan Rayne

Insurance Executive