The Covid-19 pandemic and its resulting economic crisis are hitting the insurance industry in South Africa hard.
Now, in a new report on the state of the market, McKinsey warns: “Before the Covid-19 pandemic struck, South Africa’s insurance sector was already dealing with an ongoing economic recession and a ratings downgrade. Things are now looking worse. The pandemic’s negative impact on the insurance premium pool is expected to be roughly double that of the 2008-2009 recession – and the sector will take twice as long to bounce back.”
Macroeconomic conditions in the region are likely to remain tough for the next few years, while changing customer needs and behaviours are disrupting traditional business models and pushing companies to accelerate digitalisation, states the report. As cash-strapped customers cancel insurance policies or fail to renew them, the drop in new business and retention is leading to lost revenue and shrinking customer numbers, as well as an underinsured population. And the pandemic has added a layer of complexity, too, in that physical distancing rules have required businesses to transition, almost overnight, to remote setups.
Across all insurance lines, McKinsey’s modelling – based on GDP and unemployment expectations and confirmed by industry participants – suggests that the total gross written premium (GWP) pool is likely to fall by 15% in the next two years, only returning to pre-pandemic levels by 2024. While the pandemic is outside the realm of control for insurers, it says, the best course of action for companies may be to focus their efforts inward on a “survive and then thrive” strategy.
Many already have initiatives in place to facilitate end-to-end digitalisation, improve operational efficiency, bolster cybersecurity defences and enhance the customer experience. Now they need to accelerate implementation and track results systematically to ensure that business value is captured from those projects.