COVID-19 ushers in new normal for short term -insurers
HARARE, PREMIUM income flows into short-term insurance industry will be negatively affected by individual and corporate loss of income exacerbated by low production due to the covid-19 restrictions, liquidity challenges and loss of purchasing power among the many challenges.
Financial resources of most corporates will be directed at survival activities while individuals will concentrate on satisfying basic needs.
Unfortunately for many, insurance is not high on the priority list and this will most likely result in downward revisions of insurance cover, cancellations or lapses of policies as corporates and individuals adjust to the situation.
Inflationary pressure and the devaluation of the ZWL ushered into the economy by the S.I. 142 of 2019, reintroducing a mono-currency, resulted in asset valuation distortions leaving most policyholders under-insured and exposed to partial compensation in the event of loss.
The Covid-19 pandemic has put most business strategic plans to the test with most found wanting in terms of risk management and business continuity.
While all strategies are futuristic bearing elements of risk management against negative effects of anticipated disruption, the covid-19 pandemic brought with it serious challenges and unimaginable disruptions.
Faced with an inflationary economy, the short-term insurance’s growth in Gross Premium Written (GWP) was 520% as at 30 March 2020 compared to the same period in 2019.
However, in real terms after adjusting for inflation of 670%, the gross premium written declined by 21% while assets declined by 5%.
With the implementation of lockdown to contain the spread of the corona virus, the world economy is now expected to shrink by about 3% contrary to the earlier projection of a positive 3, 4 %.( IMF World Economic Outlook, April 2020).
Zimbabwe’s economy is marked to contract by about 4,5% according to the 2020 Mid-Term Budget Review against 10% projected by the IMF.
Chances that the figures can deteriorate further cannot be ruled out as the end of the pandemic is indefinite.
Insurers responded to S.I. 142 by indexing premiums against the USD. S. I. 85 of 2020 brought relief and pricing stability as permission was granted to trade using free funds.
Unfortunately, this reprieve is just for the duration of the covid-19 pandemic making it almost impossible to predict and plan with some degree of certainty.
Should the use of the USD be banned again, it will result in pricing distortions of insurance products and valuations of covers once again.
Discretionary approval is being given to issue forex insurance policies for import and export business activities that contribute to the national economy like dairy farming which is a crucial component of the national food security.
The short-term insurance sector would prefer that such provisions be widened and be permanent to enable building of adequate reserves using a stable currency.
Focusing on future survival faced with covid-19 restrictions, local insurers have capacitated employees to enable provision of full range of services while working from home in observance of WHO social distancing safety recommendations.Prior to the pandemic, some local insurers had begun to invest in digital service provision while others were not adequately prepared.
Implementation of online services is now a crucial channel to gaining access to the insuring public who are migrating to communicating and trading on digital platforms. The investment in ICT should come with full capacitation of employees which include enhancement of ICT skills.
Lack of investment in ICT has a potential to render service delivery to customers difficult in the light of restriction related to Covid-19 pandemic while inadequate investment will without doubt render service providers irrelevant sooner than anticipated.
Challenges will however be faced in connecting with the majority of the Zimbabwe population due to unreliable, unavailability and expensive digital systems.
Insurers will continue to seek relevance by developing products that address the new needs of consumers.
Individual lifestyles and business models have changed in response to the covid-19 pandemic and the appetite for traditional products will certainly decline compromising growth in insurance business.
Consumers will more likely be inclined to cut out on home insurance as they spend more time at home.
Limited mileage driving will encourage policyholders to insure for minimum covers required by law while on the other hand the erosion of purchasing power will aggravate lapsing or reduction of insurance covers.
Faced with strained financial resources, corporates might opt for selective insurance or reduction in cover to affordable levels.
Policyholders are likely to call for reviews of some policy covers for example business interruption policies to include pandemics like the covid-19.
Innovation in structuring products suitable for the new needs must be prioritised just like investing in ICT. Changes due to the covid-19 pandemic are permanent demanding plans to be made for the long term.
Recovery of the insurance sector is highly dependent on the positive turn in the national economy which is predicted to do so by the turn of 2021.
Unfortunately, the spike in the rate of corona virus infections in Zimbabwe as of July 2020 will result in the furtherance of restrictions with dire consequences for economic recovery.