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COVID-19 impact on financial services industry – Not all doom and gloom

Earlier this month we reported on the impact of financial remedies as a result of the new Corona virus on various insurers. As a result of more insurers giving trading updates recently, FIN24 posed the question: “Who seems to be on the right path to maintain value for shareholders and whose vulnerabilities have been most exposed?”

“All insurers and pension administrators are taking some beating right now from retirement contribution holidays, insurance premium relief and additional cover they’ve advanced to support their customers for the next few months. But some will inevitably be more prejudiced,” Warwick Bam, head of research at Avior Capital Markets, says.

According to outgoing Sanlam CEO Ian Kirk, he foresees that productivity will only return to normal when SA moves to lockdown Level 1. In April and May, the insurer, which is the biggest in Africa, saw new business volumes dip between 50% and 70% compared to the same time last year.

Momentum Metropolitan Holdings also reported that its lapse rates remained stable for life insurance products in April and that more people have asked for relief like premium holidays. Furthermore, pension funds administrator Alexander Forbes is “…already preparing itself for the worst as its success depends largely on having more people formally employed and saving for retirement.”

Discovery set aside approximately R3.3 billion for potential Covid-19 claims and policy lapses. Some R2.2 billion of this provision is for possible mortality claims and the remaining R1.1 billion is for economic impact such as possible lapses and cover downgrade by clients. Sanlam has set aside a R760 million reserve for Covid-19.

Global impact

According to a US research article COVID-19 could pose a challenge to the insurance industry, particularly life insurers.

“COVID-19 could have meaningful impact on insurers due to extensive financial dislocations across asset classes and, in an extreme scenario, potentially large increases in morbidity and mortality. Life insurers with high exposures to morbidity and mortality risk could be hit particularly hard if the pandemic proves difficult to control. Mortality rates in severe scenarios could trigger meaningful pay-outs relative to capital.”

Andrew Warren, Insurance Sector Leader of Deloitte South Africa points out that although the insurance industry is generally well prepared for major loss events, including pandemics, the financial impacts will take time to assess and will be insurer and reinsurer specific. “Insurers are responding to the widening COVID-19 outbreak on multiple fronts – as claims payers, employers and investment managers. Each has its own distinct challenges, not just for the insurance industry, but for the global economy and society at large,” Warren mentioned in an earlier report.


However, the silver lining of the dark cloud is that Covid-19 have raised awareness on the importance of insurance. “Obviously, there’s pressure on consumers. But when you go through something like this, people say ‘jeepers, I’ve got to keep my life cover going. I’ve got to keep my funeral plan in place’. It’s almost like there’s awareness on health and safety stuff,” says Kirk of Sanlam.

Another observed opportunity and positive impact, according to research amongst brokers, is that the current crisis has led to:

acceptance of doing business differently,
normalised remote work,
reduced the need for and cost of office space,
increased the use and efficiency of virtual meetings, and
promoted the use of digital platforms and social media.

“The most encouraging aspect of these results, however, has been the overall sense of a dynamic and innovative industry operating amongst a resilient and highly adaptive customer set. Both brokers and customers have, quickly and ably responded to an unforeseen crisis in a calm, creative and effective manner. This bodes well for the future of the South African insurance industry in general and the short-term sector in particular as, we continue to confront and manage the long-term impact of this ongoing crisis together,” according to Christelle Colman, Managing Director of Elite Risk Acceptances.

Click here to read the FIN24 article.

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