Covid-19: Insurers must be innovative to survive
THE insurance industry will have to develop appropriate products that meet the needs of the insuring public if it is to survive the numerous threats posed by the coronavirus pandemic, regulator Insurance and Pensions Commission ( IPEC) suggests.
Insurance is a grudge purchase, often the first expense to fall away when households’ disposable incomes are strained.
Given the level of inflation, which reached 785.55 percent in May 2020 against a decline in real wages, household and corporate budgets are strained.
Before Covid-19, insurance players were already experiencing increased policy lapses as a result of a mismatch between inflation induced premium increases and salaries that are not tracking inflation.
The economic damage caused by the Covid-19 pandemic can only worsen things. While items like funeral cover could be on top of consumers’ minds now, employment levels will determine if insurance will remain a line item in households’ budgets.
IPEC anticipates an increase in lapse ratios as disposable incomes decrease.
The insurance regulator said due to various measures introduced by Government to contain the pandemic, chief among them lockdowns, most businesses including the informal sector, were not operational, while others scaled down operations for the greater part of April and May, which may have affected disposable incomes for most of the insuring public.
To this end, some policyholders may have found themselves failing to pay premiums owing to loss of income, a development that may result in policy lapses, IPEC pointed out.
The extent of the policy lapses is yet to be known. Given that lockdowns in the country started at the beginning of the second quarter, statistics on policy lapses during lockdowns will only be available when the industry submit returns for the second quarter. The pandemic might also result in withdrawals from investment funds over the coming months, IPEC anticipates.
“The reduction in disposable income, coupled with increasing operating costs is likely to force investors to liquidate their investments as they seek to meet day to day operating costs.
“This will in- turn result in increases in withdrawals from investment funds as insurers meet the rising demand.
“We also anticipate a reduction in income as a result of low premiums, as stated above, which may cause investors to withdraw some of their investments to settle claims as they fall due,” said IPEC.
Intermediaries dependent on face- to- face interactions have been unable to sell policies during the lock down period.
Old Mutual told this publication that some channels of distribution, such as intermediaries have faced challenges in accessing clients who have been confined to their homes.
This has adversely impacted new business acquisition efforts, said the insurance giant.
Meanwhile, the commission continues to urge the industry to develop appropriate products that meet the needs of the insuring public.
“The pandemic and the subsequent containment measures that have been implemented show that it is critical for the insurance sector to be innovative and come up with products that appeal to the insuring public,” said Mrs Grace Muradzikwa,
Commissioner of Insurance, Pension and Provident Funds and IPEC’s boss.
“For instance, post Covid- 19, some businesses may continue to have staff work from home, which may result in some employees not using their vehicles regularly. To this end, there is scope for the sector to introduce motor vehicle insurance that is mileage-based instead of just having the traditional motor vehicle insurance that does not take into account that one’s vehicle is probably parked for the better part of the insurance term.
“Further, Covid-19 has also shown that it is necessary to come up with insurance products that provide cover for business interruption and loss of income caused by pandemics. There is also scope for the insurance industry to come up with products that are specific to Covid-19, because as things stand no one knows for how long this pandemic will be with us,” Mrs Muradzikwa pointed out.
In South Africa, Discovery has enhanced a number of its products by adding a Covid- 19 benefit.
The insurance giant also launched Vitality Health Check for senior citizens, making itself more relevant to panicking insurance customers.
Mrs Muradzikwa said there is also room to market event cancellation cover, performance contracts and cyber insurance due to the increase in online transactions.