Insurer resilience tested by civil unrest and pandemic shocksCape Town, South Africa. Credit: Shutterstock/Alexcpt_photography

Insurer resilience tested by civil unrest and pandemic shocks

Civil unrest and pandemic were the standout insurance events discussed in the 2022 Financial Sector Outlook Study; a report compiled by Genesis Analytics in partnership with South Africa’s Financial Sector Conduct Authority (FSCA). The report took a deep dive into the assets under management and gross written premiums in both the life and non-life insurance sectors, before reflecting on how each of these sectors responded to the aforementioned shocks.

The total assets under management at South Africa’s life and non-life insurers have grown at a CAGR of more over 4% for the five years ending 2020, with somewhere between 93% and 95% of this total being held by life insurers in each of those years. Despite an estimated ZAR3.36trn in combined assets, the local population remains relatively underserved, with the Swiss Re Institute’s sigma 3/2021 reporting insurance penetrations, being premiums as a percentage of gross written premium (GWP), of 11.2% and 2.5% for the life and non-life insurance sectors respectively.

Funeral cover remains the preferred insurance among consumers, with around 42% of adults claiming to have such coverage. Stripping out funeral cover, only around one in five adults have one or more product under the life cover, personal assets cover or health insurance segments. “The number of claims in the long-term insurance industry increased [during the first year of pandemic] and the non-life insurance industry saw a rise in business interruption claims,” noted the report, before flagging the non-payment of claims; premium increases; and the failure of insurers in disclosing changes made to customers’ policies as areas of concern.

South Africa’s life and non-life insurers are jointly regulated by the FSCA and a Prudential Regulator (PA), which is housed within the South African Reserve Bank. The former is concerned with market conduct issues, whereas the latter is focused on prudential matters such as licensing and solvency. According to the PA, there were 60 primary life insurers registered in South Africa on 31 March 2021, with the top five (Sanlam, Old Mutual Life, Liberty, Momentum Life and Discovery Life) accounting for 82% of that market’s total assets. The non-life insurance sector was less concentrated, with the ten largest insurers by GWP accounting for 73.8% of the market, including reinsurance premium.

Part of the value offered by the 2022 Financial Sector Outlook Study is its assessment of claims performances in the combined insurance sectors during the early part of the pandemic, between March 2020 and December 2020, when both consumers and insurers endured heightened stress due to the uncertainty around the peril. The report’s authors chose the claims ratio, being the percentage of claims in relation to premiums earned, to measure outcomes. South Africa’s primary life insurers saw their claim ratio decline from 94.4 in December 2019 to 102.2 in December 2020 as pandemic-related death claim streamed in. Similarly, primary non-life insurers experienced an increase in claims ratio from 62.5 in 2019 to 74.8 in 2020.

Readers should note that a claims ratio exceeding 100 indicates that the insurers, on a combined basis, would have paid out more in claims than they collected in premium. The life insurers were affected by record numbers of death claims, whereas the country’s non-life insurers saw a big jump in the number of business interruption (BI) claims consequent the pandemic and ensuing national lockdowns. They had to make good for claims for loss of profit where businesses had this insurance cover in place. Another reason given for the declining claims ratio was that customers faced difficulties in playing insurance premiums due to losing jobs or going on restricted hours during the early months of lockdown.

One of the clearest indicators of the impact of pandemic on South Africa, came courtesy of the life industry, which recorded 434,216 death claims in 2020, a 36.7% increase over the 317,442 claims received in 2019. The Association for Savings and Investments South Africa (ASISA) has since published statistics for 2021 in which it reported record payouts totalling ZAR608bn for the full year. These payouts were made to honour claims against life, disability, critical illness and income protection policies as well as retirement annuity and endowment policy benefits. ASISA also reported a surge in life policy claims corresponding with the third wave of the Covid-19 pandemic. The number of death claims made against life, funeral and credit life policies jumped from 369,892 claims between 1 April and 30 September 2019 to 565,522 claims between 1 April and 30 September 2021.

The FSCA responded to the pandemic by issuing exemptions to both life and non-life insurers from certain provision of the Regulations under the Short-term and Long-term Insurance Acts, specifically to allow premium relief to policyholders.  “The exemptions aimed to facilitate the delivery of premium relief to policyholders, at the discretion of the insurer, without affecting the expected income of intermediaries during the period of the national state of disaster,” they wrote. In addition, the FSCA communicated its expectations insofar the fair treatment of customers at each point in the product cycle including advertising, sales, claims, complaints and renewals.

The regulator took similar hands-on approach following the July 2021 civil unrest in Gauteng and KwaZulu-Natal, estimated to have caused the country more than ZAR50bn in economic losses. Soon after the event, the FSCA wrote: “We have been in discussions with Sasria – the country’s special risks insurer – on the processing of claims to affected businesses, with the intention of ensuring that all affected policyholders were paid the claims due to them timeously; we have also ensured that policyholders are aware of their eligibility to claim and, through communications with insurers, have encouraged policyholders to submit their claims on time”. This approach saw around ZAR37bn in claims notified to the country’s special risks insurer.

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