Life insurance industry looks to life beyond Covid-19

Stangen CFO Lerato Olahleng believes the current crisis gives SA an opportunity to rebuild its economy.

The extent of the Covid-19 pandemic’s impact on the South Africa and global economy in the long term is still unfolding, but at this stage it appears the life insurance industry is well positioned to weather the storm. 

In fact, the crisis could be a blessing in disguise for the country. The recent downgrades of South Africa’s credit ratings by agencies like Moody’s was actually long overdue, and was already priced into the markets. What we are going through now masks what was already a shaky economy, and gives us an opportunity to get a handle on rebuilding at a fundamental level.

At an industry level, life insurance still offers a strong investment case from a shareholder perspective. The pandemic has highlighted the need for life insurance in a time of crisis, and although there is likely to be a sharp slowdown in economic activity, we see insurance penetration rising, albeit at reduced premium levels as consumers down-select their cover.

The pandemic has also dramatically accelerated the digital transformation of the industry. Traditionally, the life insurance industry has lagged its short-term counterpart in this regard. What we are seeing at the moment is that life insurers that have invested in their digital capabilities are better able to maintain business continuity, both from the perspective of having their employees working remotely and maintaining their connections with their clients and their distribution channels. 

One of the unexpected side-effects of the pandemic for many life insurers has been the fact that they’re not able to perform medical tests in the underwriting process. For some, this has meant making some tough decisions about how they underwrite new business. For others, the way forward has been to rely more on data than an in-person medical exam – simply accelerating a process that has been underway in the industry for some time now. 

Indeed, there’s been a growing trend worldwide for some time now to cut out full blood tests for medical underwriting completely, with all underwriting done through an online health-based questionnaire, and only a small percentage of customers sent for an HIV test based on a scorecard. As a result, we’re seeing an increasing number of ‘no-exam’ life insurance products in the market, where clients can get cover based on as few as four questions. The more information they provide, the greater the level of cover they can access. 

Other areas of risk for many life insurers right now include the global volatility of equity markets and declining interest rates, especially where rate-sensitive products are concerned. Fortunately, the industry already has a playbook for risk management that was significantly boosted after the global financial crisis of 2008-09, and most industry players are mitigating their risks by maintaining capitalisation buffers or running hedging programs.

We’ve also seen some insurers focus on the preservation of capital, as it was hard to predict where the equity markets were headed, even before the turbulence caused by the Covid-19 pandemic. By staying in money markets and cash or cash equivalents, they have been able to avoid the worst of the recent shocks to the stock market. Although reductions in interest rates will have impacted their forecasts, they’re taking the view that it’s far preferable to losing a large percentage of your portfolio. 

Ultimately, it’s still far too early to assess the impact of the Covid-19 pandemic on our business and the broader industry. We are currently seeing no great effect on our business, but it’s early days yet. From a claims point of view, we will also only be able to assess the impact of the pandemic on our claims ratios once the crisis has played out a bit longer. Until then, we’ll keep doing what we do best: managing risks carefully, both for our business and our clients.