Covid 19 – Funeral assurers considering reinsurance strategies?

Covid 19 – Funeral assurers considering reinsurance strategies?

Dorcas Chigodho

HARARE, As late as 2015, about 90% of funeral assurers in Zimbabwe did not have reinsurance as a risk management tool and to date the figure has shot to 100%.

With the Covid-19 pandemic weighing down on assurers, the risk position of funeral assurers is set to worsen.

Reinsurance remains a critical component in funeral assurance as Zimbabwe is also prone to pandemics like Covid-19 which has already affected nearly 5 000 people and killed over 80.

Amid the growing pandemic, Zimbabwean funeral insurers have a 0% reinsurance risks retention ratio, a worrisome position for the country’s life assurers.

Reinsurance is insurance bought by an insurance or assurance company to cover claims in times of distress while reinsurance risk retention measures planned acceptance of losses by deductibles.

This means that funeral assurers are left exposed to any form of risk.

Market watchers have always argued that embracing best practices such as consulting actuaries operating in the life space and taking on proper reinsurance arrangements would improve players’ underwriting capacity.

This will also widen industry players’ knowledge in relation to market dynamism.

The regulator, Insurance and Pension Commission (Ipec) has expressed concerns over this worrisome trend , urging funeral assurers to have reassurance arrangements so as to better manage recurring  risk exposure.

The Q1 Ipec report for funeral assurers noted that funeral assurers wrote 6,73% of the total funeral business which is approximately fourteen times less than the funeral business written by the life assurers.

“No funeral assurer had reassurance arrangement(s) in place, resulting in a reinsurance ratio of 0% for the quarter ended 31 March 2020.The Commission cannot over-emphasise the need for funeral assurers to have reassurance arrangements so as to better manage their risk exposures.” Noted Ipec

Reinsurers say they have failed to make a sale in this sector.

Zimbabwe Association of Reinsurers ( ZARO)chairperson Leo Huvaya told Insurance24 that reinsurers had made no business with funeral assurers.

“The values bought are too low to seek reinsurance or to be fully absorbed. We have tried to engage and re- engage them but with no success yet. The thing with reinsurance is that it works in arrears prone to catastrophes for example the cyclone Idai. It was so fortunate that the people who were affected were in areas where people hardly take up funeral life cover. If it had happened in Harare the funeral industry could have collapsed. We are not prone to cyclones but you cannot really be sure but you need reinsurance for catastrophe. Not many exposures. I’m sure that is why they are relaxed. We really have struggled to sell in that area,” he said.

Ipec has also made numerous calls to industry players to consider reinsurance arrangements.

A survey done by Insurance24 shows that covid 19 is taking toll on the industry players and death numbers continue to go up.

It is apparent that the industry has to change its approach and it is no longer business as usual.

Claims are going up.

A funeral assurer who spoke to Insurance 24 on condition of anonymity said the sector should brace for a rocky road.

“The number of burials we are handling daily are shooting up every day. I’m sure it’s the same with other parlors. It’s hectic .Sometimes we are running out of space. Yes, people have always been dying but this pandemic is worsening things. Now on the money side it’s draining considering that most of these people had policies. The economy is bad. Coupled with this you can’t underscore what we are going through,” he said.

An African problem?

ZEP-Re regional director for the Southern Africa hub, Jephita Gwatipedza, concurred  that covid 19  is a looming catastrophe that could deal a major low won  funeral assurers  but said even in Kenya ,  funeral assures do not take reinsurance seriously.

“Yes its true with Reinsurance impact could not have been bad on their profit and loss and balance sheets. But even in Kenya funeral assurers don’t buy Reinsurance because they never think of these Catastrophe events. Going forward they must consider buying Reinsurance,” he said.

But here is the good news:

Zimbabwe Association of Funeral Assurers (ZAFA) General Manager Taka Svosve regardless of the low risk due to the business model in Zimbabwe the assurers are now seriously considering reinsurance strategies.

He added that the industry was in the process of implementing an industry based reinsurance arrangement for its members.

“True currently there is no funeral assurance company with re insurance arrangement. Luckily there has not been any catastrophe in the sector to date…  But let me hasten to say that the exposure for funeral assurance companies is not as high as that of short term and other forms of insurance. This is because the funeral assurance contract mainly promises or pays a defined benefit in the form of a funeral service and related goods like hearses, mortuaries, caskets etc. as opposed to cash pay outs which are more riskier.  Funeral Assurers therefore focus their investments on these service asserts which are not easily exposed like liquid assets,” he said

“However regardless of the low risk due to the funeral business model in Zimbabwe, funeral Assurers are seriously considering re insurance strategies especially where a catastrophe would happen and sum assured needs to be paid in place of a defined funeral service. ZAFA has since initiated a process of structuring an industry based re insurance arrangement for its members and more details shall be provided as we progress.”

Should the assurers take up reinsurance, they stand to increase the amount of available capital, allowing them to write more business while also meeting their Minimum Capital requirements.

Inflation adjusted GPW (Gross Premium Written) for Q1 decreased by 50,33% to ZWL$2,837 while only two out of  eight funeral assurers reported capital positions above the regulatory minimum capital requirement of ZWL$62.50 million.