After Covid-19: the state of the insurance industry in Africa

After Covid-19: the state of the insurance industry in Africa

The Covid-19 pandemic, which created social and economic upheaval around the globe, also disrupted the insurance sector in Africa. In this report, Prince Cookey examines the state of the insurance market on the continent after the pandemic...

In its report, Covid-19: Financial reporting and Business Implications for Insurers in Nigeria, KPMG in Nigeria states: “The Covid-19 pandemic has created new challenges for most businesses globally at unprecedented levels. Insurance companies in Nigeria are not insulated from these negative impacts of the pandemic and the effects are being seen on their operations from sales and processing of insurance policies through claims processing and payment to financial reporting. These could impact insurers’ financial positions, capital and solvency ratios significantly. Measures were adopted by the government, insurance regulators and insurers to support the insurance business during the Covid-19 pandemic and lockdown.”

For instance, in a circular issued on 1 April 2020, the National Insurance Commission (NAICOM) stated that “where Approval-In-Principle for the preceding insurance period had been granted, all renewals or extensions of the foreign reinsurance proportions that become due during the Covid-19 movement restriction are permitted for renewal on the existing basis”, adding: “All insurance/ reinsurance placements shall be done in accordance with other relevant extant insurance laws, regulations and guidelines while all submissions to NAICOM including hard-copies sequel to the forbearance shall be done not later than seven days from the end of Covid-19 movement restrictions.”

Impact

On what business impact insurers should expect going forward, the KPMG report is emphatic that “policyholders’ behaviour may change because of Covid-19”, adding: “For instance, increases in surrender claims and instances of insurance fraud may be experienced. This may also impact the recoverability of deferred acquisition costs (DAC) and reinsurance assets. Measures taken by the government and regulators to slow down the spread of the pandemic may limit sales activity and could impact premium income. The impact may however be reduced for insurers who had already started the journey towards a digital transformation and are able to quickly adjust to changes in doing business brought about by Covid-19 relative to others.”

In South Africa for instance, the International Bar Association (IBA) has reported that “the inevitable result of the pandemic and the government’s response has been the adverse economic effect on many businesses”, continuing: “As one would expect, these businesses have looked to their insurance policies for assistance in mitigating the economic affect that they have suffered. The approach on insurers has been unprecedented in South Africa and the pandemic highlighted two categories of business interruption insurance that could possibly respond to claims made by policyholders relating to business interruption losses suffered by them due to Covid-19.”

 The post-Covid-19 outlook

A recent report stated that the aftermath of Covid-19 will be a turning point for the entire insurance sector in Africa, according to Tope Smart, president of the African Insurance Organisation (AIO).

“This is because the insurance sector plays an important role in the economic development of the continent,” Mr Smart said.

“The expected increase in intra-African trade through the AfCFTA will lead to higher insurance penetration across the region. To achieve this goal, the AIO and I will work closely with governments and regulators in the region,” he added.

Delphine Traoré, former AIO president, added: “Although the insurance sector in Africa is not out of the woods yet, as you will read in this report, there are good reasons for optimism. The insurance sector remained resilient and worked closely with governments and regulators to cope with the pandemic’s dramatic financial shock. Throughout the pandemic, re/insurance players maintained their operations and deployed their full range of risk solutions, expertise and capital to support African policyholders.”

A similar study by Cenfri, titled Challenges and opportunities for insurance providers and regulators across sub-Saharan Africa, states: ‘The Covid-19 pandemic and accompanying restrictions by many governments across sub-Saharan Africa have forced insurance providers, insurance regulators and consumers to rethink how they interact and maintain operations through this period. Furthermore, the economic crisis resulting from the pandemic is likely to have substantive impact on insurance markets across the continent in both the short and the long term.

“While the focus for many insurance market participants is on the immediate challenges and responses, Covid-19 will result in both risks and opportunities over the longer term. In particular, Covid-19 has highlighted many of the pre-existing weaknesses in markets and placed further pressure on these. We are particularly interested in identifying what these are, how the current crisis may affect these and what can be done to both mitigate the risks and take advantage of the opportunities that do arise.”

 The rise of digitalisation

A major fallout of the pandemic is the rise of digitalisation in insurance business in Nigeria and elsewhere in Africa. As the lockdown and other Covid-19 restrictions persisted, insurers quickly developed and adopted digital means of reaching out and delivering insurance products and services to policyholders without the usual on-on-one format – a system that has become known as the ‘new normal’ in the market.

To many insurers, the coming of the pandemic became a blessing in disguise as digital insurance led to faster and cheaper means of delivery insurance value to individual and corporate clients.

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