THE LIFE INSURANCE industry would face some tough business and moral decisions in the next few months as they debated vaccine mandates for employees, vaccine premium adjustments for policyholders and questions of repricing policies to recoup some of the losses incurred over the recent period, according to KPMG South Africa’s South African Insurance Industry Survey for 2021 released last week.
KPMG Africa partner and insurance practice leader Mark Danckwerts said there were concerns that once the vaccination rollout had achieved scale, policyholders might decide life cover was now less of a priority than other basic needs.
According to the KPMG Africa survey, the life sector witnessed poor premium growth, mediocre investment performance and significant claims and subsequently, moved from a total industry profit of close to R22.1 billion in the 2019 period to a loss of R2.6bn in 2020.
“The impact was felt not only on provisions, but also on expenses, as businesses moved to remote working, supply chains were disrupted, and premium collections slowed,” said Danckwerts. “Despite these losses, dividends for the surveyed entities increased from R16.1bn to R18.5bn, with the life insurance industry remaining well capitalised.”
The study surveyed 40 non-life insurers and 21 life insurers and seven reinsurers. The results indicated that the South African insurance industry had been invaluable to the economy, serving as a shock absorber and allowing many businesses to recover.
Danckwerts said this year’s survey indicated that while the insurance sector was hit hard, it was resilient and adaptable.
“Our research shows that all insurers had included Covid-19 in their forecasting by either including stresses or shocks on specific assumptions or updating the budget forecast for the expected impact of the pandemic and applied further considered scenario projections to these updated budget numbers.
“However, moving forward we believe much introspection and re-evaluation by insurers would need to be given to their risk appetites and capacity.”
For the life insurance segment of the sector, an analysis of 21 of the major life insurance licences in South Africa, covering 88 percent of the market by total assets, indicated the top five life insurers grew their asset base by 3.5 percent with the smaller remaining entities outgrowing their larger counterparts with a 9.3 percent growth in assets.
Performance of the smaller life insurers saw an overall average growth of around 8 percent, leading to a slight shift in the share of premium. Despite this, the top five still generated more than 87 percent of the total premium written by the market.
Danckwerts said that while the hard lockdown had a direct impact on the sector's ability to make sales, with the impact felt during the initial phase of transition to remote working, reporting during this year has suggested that this has turned slightly, however, the recent civil unrest had put another smaller dent in the ability to engage directly with the customer.
On the other hand, Danckwerts said that the non-life insurance industry had certainly been tested in almost all respects.
“While it experienced lower gross written premiums (GWP) growth when compared to the average of prior years, increases in reinsurance costs, low interest rates, volatile financial markets and significant business interruption claims, some lines of business loss ratios actually improved under the Covid-19 lockdown.”
The survey shows the non-life insurance industry reported GWP of R128bn in 2020, an increase of 5 percent. “This indicates that the impact of the pandemic had not been as severe on the industry as expected and is commendable considering the premium relief measures many non-life insurers had provided to customers.
“This sector committed to keeping premium increases low over the past year and demonstrated cohesion, togetherness, and empathy in response to Covid-19 challenges consumers were facing.
“Total investment income was down 31.9 percent due to the interest rate environment and fair value losses, with gross insurance liabilities increasing by 27.2 percent.
“The combination of a hardening insurance market, ‘lower for longer’ interest rates and larger than forecast losses would make insurance cover more expensive for long-term risks in third-party liability and other lines.
“This would have a knock-on effect on policyholders as insurers seek higher premiums to recover this cost,” said Danckwerts.
PERSONAL FINANCE