How has Covid-19 impacted insurance sector?

Batanai Matsika

From a global perspective, many factors have played a role in shaping the outcomes of the pandemic including (i) how early the outbreak happened, (ii) the readiness to respond, (iii) the need for lockdowns and (iv) the degree of economic support provided to the economy through fiscal and monetary interventions. The good news is that the pace of vaccination programmes has been picking up. According to McKinsey & Company, real-world data from Israel and the United Kingdom shows a sharp reduction in hospitalisations and deaths as vaccines appear to be effective in reducing transmission and against the variants of concern encountered thus far. Furthermore, the global vaccine rollout has made real strides in scaling production and setting up supply chains to support massive vaccination programmes that are now accelerating in many countries. In fact, herd immunity in some regions might be reached well before the end of 2021.  That said, the real question is whether the exit from the pandemic will be strong enough to reinvigorate widespread growth. Not all businesses, industries and economies face the same circumstances and will certainly fare differently in the years ahead. In this article, we look at the impact of the Covid-19 pandemic on the insurance sector in Zimbabwe and highlight some of the opportunities it has presented.

Within the African market context, it is worth noting that most countries have an insurance penetration rate below 2.0%. The average total insurance penetration of the entire continent is estimated to be 2.98%. A major source of inefficiency in African insurance markets is the lack of digitisation across the value chain. Many insurers across the region still have traditional business models and rely heavily on brokers and agents for distribution. Claims processing and policy management also largely remain reliant on in-person engagement in most markets. Social distancing mechanisms employed by governments have had a negative effect on operations. We detail the impact of the Covid-19 pandemic hereunder;

  • Sales affected negatively. Restrictions on movement have interrupted physical sales by agents and brokers, which are the main distribution channels in Sub Saharan Africa. Reductions in lending also affected the sale of new credit-life policies. Insurance sales in industries like hospitality, tourism, marine or aviation have been negatively affected;
  • Premium collection affected by constrained incomes. Insurers with digital premium collection mechanisms in place, like mobile money have not been significantly affected by Covid-19. However, microinsurance policies paid in airtime deductions or cash have been negatively affected by containment measures. Premium collection is also expected to become more challenging as consumers’ income is more constrained;
  • Claims processing and payment delays may erode trust. Some insurers are not appropriately set up to process or pay claims remotely; and in other instances, loss assessments for larger, general insurance claims have not been able to take place during lockdown measures. This, compounded with the fact that many businesses will not receive claims pay-outs from their business interruption policies, will have negative implications for how consumers perceive the value of insurance; and
  • New products not being launched, but some add-on benefits being offered. Product development processes have for the most part been halted due to internal operating constraints.

However, some insurers have developed add-on benefits to existing products for consumers to respond to Covid-19 risks, such as offering free Covid-19 rider benefits on existing life insurance policies or tailoring existing life insurance products to frontline healthcare workers.

All in all, the Covid-19 pandemic has also presented an opportunity for market players enhance efficiencies through accelerated digitalisation. The legacy systems used in most insurance markets in Africa lead to high costs of doing business. We note that Covid-19 is forcing the digitalisation of value chains.

In our view, digitalisation will in the long run reduce insurers’ costs and improve their efficiency. There is an opportunity for insurers to rapidly move towards digital premium collection channels and claim payments. In addition, there is need to adopt remote on-boarding. International financial services standards have moved away from the requirement for face-to-face client onboarding.

In Zimbabwe, the winners are those that have been embracing technology and new innovations. For example, Old Mutual Zimbabwe has maintained market leadership in the short term insurance by embracing technology.  As consumers are shifting their behaviour to be more digital, insurers are moving away from traditional paper based systems that are costly. Investors on our market can play this theme by gaining exposure in Old Mutual Zimbabwe Limited on FINSEC.

 

Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com

 

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