Recapitalisation extension good as Covid-19 impact increases pressure on insurer production, profitability
Insurance companies in the country currently undergoing a recapitalisation exercise will have to struggle for business productivity and profitability for the short to medium term following huge impacts of the Covid-19 pandemic on the industry.
Covid- 19 lockdown and policy regulations of government as well as economic slowdown generally too have taken a huge toll on insurance business, as most consumers till now have preference for food and other essentials to taking up insurance policy or renewal of existing policies.
This is as claims continue to come in their numbers, with already insured consumers not wanting to lose any claims opportunity, while awareness gets increasing high.
Analyst who spoke on the state of the insurance industry said the recent extension of the recapitalisation guideline was a big relief to the industry, as Covid-19 has eroded the objective of the exercise.
According to the analysts, recapitalisation of the industry at this time could mean excess capital if there are not enough businesses to deploy the capital.
Pius Apere, chairman / CEO, Achor Actuarial Services Limited said the most obvious potential impacts of the covid-19 on insurers are the pressure on sales from reduced business activity, the upsurge in claims arising from life, health, travel and business interruption insurance etc.
“The impact of covid-19 on businesses (e.g. business interruption), economy (e.g. volatility of markets) and human lives (e.g. death) has put pressure on insurance business sales resulting from reduced business activity e.g. less use of face-to-face channels, social/physical distancing etc.
The insurance industry is likely to experience reduced sales and attendant losses in the covid-19 period even after the recapitalisation exercise, and this would affect the insurers’ profitability and solvency over the short term, in which case the industry may appear to be over capitalised if the benefits of the recapitalisation could not be achieved
Apere who is also an actuarial scientist and chartered insurer further noted that the above impacts are likely to affect the solvency position of many insurers, which would require regulatory scrutiny with appropriate solvency tests to ensure insurers can withstand the immediate and knock-on impacts of the covid-19.
“This no doubt, this had already affected the implementation of the recapitalisation guidelines, hence the recent extension of the recapitalization deadline to 30th September 2021, which is a welcomed development. The extension would allow insurers space to review their strategic initiatives/plans to meet the recapitalization deadline.”
According to Apere the recapitalisation exercise had been designed to provide the required capital base to address some critical challenges facing the industry over the decades in order to reform the sector for sustainable economic growth and development.
He said the key critical challenges that the recapitalisation was meant to address include inability to pay genuine claims, lack of innovation in product development, lack of consumer education and awareness, poor digitalization (ICT) of insurance operations, inability to underwrite bigger risks, low market penetration, inadequate human capital development, just to mention a few.