COVID-19 and the Insurance Sector

Ebere Nwoji writes on the impact of the pandemic on the global insurance sector

As the second wave of the much dreaded coronavirus hits the globe, insurance sector all over the world is now under threat of several litigations filed by the global insuring public for diverse claims.

Indeed, the pandemic, has created a highly volatile and uncertain environment for insurance companies worldwide including in Nigeria, resulting in a litany of heightened risks for operators.

The situation has led to a rise in litigations against insurance firms and their regulatory bodies.

Here in Nigeria, issues surrounding the pandemic has truncated the accomplishment of the insurance industry’s recapitalisation exercise initiated by the National Insurance Commission (NAICOM) as both the insurance managers and their shareholders took the commission to court arguing that it should have dropped the recapitalisation exercise because of effect of the pandemic and Enders protest.

At individual company level, some insurance companies are facing threats of being dragged to court by their customers over payment of claims emanating from the pandemic.

Industry source told THISDAY that some of such policy holders threatening to drag their insurance firms to court over unpaid claims have been advised to approach either the Nigeria Insurers Associations or NAICOM’s Claims Settlement Bureau instead of going to court.

Some have agreed while some are still weighing the options.

Outside the shores of Nigeria, the case is not different as recent reports on claims caused by the pandemic as compiled by the Allianz Global, Corporate and Speciality, (AGCS) from Johannesburg, London, Munich, New York, Paris, Sao, and Singapore, showed that over there, insurance directors and officers are seriously under threat.

According to the report, rising insolvency exposures, growing cyber security threats and persistent securities class action activity are among the key risks for which managers of insurance companies could be held liable.

The report stated that in 2021, companies need to be on guard against, “event-driven litigation” which can be caused by different triggers such as inaction on diversity, poor sustainability performance or for underestimating or misrepresenting Covid-19 related risks.

“Growth in the number of lawsuits as well as rising claims’ frequency and severity has already resulted in a difficult environment for the insurance sector in recent years. Underwriting results have been negative in many markets around the world, including Australia, the UK, the US and parts of Europe.
“While the market was correcting itself at the beginning of 2020, it was then hit by the current pandemic and economic crisis.

“Many insurers are still digesting the effect of previous pricing inadequacy and exposure and loss trend increases from prior-year policies,” Global Head of Financial Lines at AGCS, Shanil Williams said.

“This is also at a time of great uncertainty around forward-looking exposure assessments, in particular the impact of Covid-19 on the economy in general and on specific industries. Combined with many ‘known unknowns’ like climate change, cyber risks or environmental, social or governance (ESG) factors, this has created a lot of nervousness in this sector,” he added.

In the United States, the report stated that collective redress remains a key risk for any board of management although new US securities class actions filings were pacing about 18 per cent behind rates seen in 2019 during the first half of 2020, according to Cornerstone Research. This is largely due to the disruption of business and court activity caused by the pandemic.

According to the report, nonetheless, the frequency of court filings is on track to match rates in 2017 and 2018 and will be well in excess of every year prior to those. The percentage of new filings in 2020 targeting foreign – domiciled US-listed companies has been nearly twice the average in recent years, with around half of these against Asia-domiciled companies including in China and Singapore.

Outside the US, the report said securities class actions are being filed in record numbers and the threat of facing an action has increased in many jurisdictions, as highlighted in a recent AGCS and Clyde & Co report. The landscape for collective redress in Europe has evolved over the last few years and collective action is a growing exposure.

The report, revealed that shareholders have filed first class action lawsuits directly related to Covid-19. Examples include suits against cruise ship lines that suffered Covid-19 outbreaks, as well as litigation regarding the business impact of the pandemic on companies’ financial performance or operations or misrepresentations about coronavirus-related therapies.

Opportunities

Despite the challenges posed by the pandemic, McKinsey & Company, a global management consultancy services company, has described the insurance sector in Nigeria and some other countries in Africa as one of the world’s hot regions for insurance penetration.

The global firm stated this in a report titled: “Africa’s insurance market is set for takeoff.”
It noted that steady economic growth in most countries combined with a largely underdeveloped insurance sector have positioned the continent as the second-fastest-growing region for insurance globally after Latin America.

Prior to the impact of COVID-19, the insurance market was expected to grow at compound annual growth rates (CAGRs) of seven per cent per annum between 2020 and 2025, nearly twice as fast as North America, over three times that of Europe, and better than Asia’s six per cent, it stated.

However, it pointed out that the pandemic which had profoundly affecting both lives and livelihoods, has seen consumers cutting back on discretionary expenditure—including insurance—in the face of income and market volatility.

“However, this impact is expected to delay rather than alter the pattern and potential of future growth.

And in some cases, the crisis may accelerate existing trends—notably the shift toward digital and remote channels, which has the potential to offer new opportunities to both insurers and consumers.

“We believe that a strategic approach that takes into account the unique characteristics of African markets and looks to collaborate with regulators to drive reform and safeguard consumers could unlock significant value not just for industry players but for society more broadly at this critical time.

“The African insurance market’s immaturity points to significant scope for growth Africa’s insurance industry is valued at about $68 billion in terms of GWP and is the eighth largest in the world—although this is not equally distributed across the continent.”

Furthermore, the report noted that markets in the region have been inconsistent in terms of size, mix, growth, and degree of consolidation, with 91 per cent of premiums concentrated in just ten countries.
South Africa, the largest and most established insurance market, accounts for 70 percent of total premiums.

“In the Southern Africa region, 54 percent of premiums are for life insurance. Non-life insurance, however, plays a larger role in Anglophone West Africa, North Africa, East Africa, and even more so in francophone Africa.

“The level of maturity in these six regions is low, relative to global reference countries, as measured by insurance density (premium per capita).

“While most African countries have experienced double-digit insurance growth in CAGR in local currency over the last five years, this has mostly been driven by economic growth, rather than deepening market penetration,” it added.

According to the report, levels of insurance penetration in Africa are half the world average measured as a percentage of Gross Domestic Product (GDP), and premiums per capita are 11-fold lower than the world average.

It further stated that the bulk of growth in Africa was likely to come from pensions and individual life insurance— which is the fastest growth line of business on the continent, although starting from a smaller base compared to non-life insurance.

According to the report, while motor insurance is the largest contributor to non-life insurance—driven by requirements for a compulsory minimum level of insurance, often third-party liability in countries like Morocco, Kenya, Nigeria, and Egypt—accident insurance, health insurance, and property insurance have all shown faster growth in recent years.

The prospects for growth in commercial lines are also good, it stated, noting that in Nigeria, for example, commercial insurance has performed strongly, with oil and gas growing at nine per cent per annum and marine and aviation at 10 percent per annum between 2014 and 2018.

“In 2018, oil and gas insurance and marine and aviation insurance accounted for 34 per cent and 11 per cent, respectively, of nonlife gross premiums in that country. In Ghana, the Ghana Oil and Gas Insurance Pool (GOGIP) almost doubled from $25 million in 2016 to $48 million in 2019 and represents approximately 15 percent of total nonlife premiums in that country.

“Insurance in Africa is on the move, and several trends show promise for the sector. Our analysis highlights five that will be pivotal in determining how the sector evolves in a post-pandemic world.

“And where penetration is occurring, it is mostly accompanied by structural reforms. Market liberalisation and deregulation, the enforcement of compulsory insurance, increased access through wider distribution, public–private partnerships, and regulation to support innovation and access have all been shown to build consumer trust and develop more resilient insurance industries with better-protected populations in comparable markets.

“And the Pension Reform Act of 2014 in Nigeria has benefited both consumers and the insurance industry alike, leading to a 70 percent growth in the sale of pension products in that country between 2012 and 2017.

“The shift to digital channels in Africa is well underway, and with that comes greater expectations of service delivery. While we are seeing a number of insurers starting to digitise customer journeys, significant opportunities still exist to accelerate this in many markets.
“The COVID-19 pandemic has accelerated this trend, by driving demand for digital and remote channels, and we expect this to continue beyond the crisis.”