Nico Conradie, CEO, Munich Re of Africa

Leaders in the insurance and reinsurance sectors spent much of 2020 dealing with the challenges and trend shifts introduced by the COVID-19 pandemic.

We had to adjust our tried-and-tested business practices to accommodate remote working while making swift assessments of how pandemic-related claims would impact on our various product lines. Although the industry seems to have weathered the storm, we cannot afford to lose sight of the broader risks that individuals and businesses face from pre-pandemic risk trends.

The global reinsurance sector will thus remain focused on key risk areas such as climate change and cyber risks in addition to the pandemic through 2021. We will conduct our businesses against the backdrop of challenging economic conditions as the world emerges from COVID-19. As an industry, we must remember that the performance and profitability of both primary insurers and reinsurers are closely correlated with economic growth. This is of particular concern in Africa, and specifically South Africa, where it could take three or four years for GDP to recover to 2019 levels.

As reinsurers, we will have to adapt to changing customer behaviours that are emerging in the wake of national lockdowns and the pandemic. This unnatural environment has accelerated the disruption of traditional business models as we seek to conduct more transactions digitally. Technology should be welcomed for enabling us to adopt work-from-home and remote servicing of our customers; but it introduces certain challenges in growing a business. A recent study by McKinsey found that companies were spending almost double the time to sell products and solutions and to onboard new clients under remote working conditions.

Munich Re of Africa is active in both the life and non-
life reinsurance segments. One of the consequences of COVID-19 is that our primary life insurance clients are re-examining their risk appetites and reinsuring certain risk exposures that they would previously have retained. This change, which we see overflowing into 2021, is an opportunity for life reinsurers to obtain more business. Another trend that we expect to continue into the new year is the contraction in new business sales in the traditional life underwritten market. Insurers that have direct-to-consumer distribution channels have fared better than those with agency or broker force distribution.

Persistency in the life segment has been better than expected through lockdown; but we are keeping a close eye on this. We expect that some of the interim measures put in place by primary insurers during lockdown could become permanent features of the business in coming years, most notably the easing or waiving of certain medical underwriting requirements. There are, however, concerns that lapses will increase as consumers are forced to face the economic reality of job losses and liquidations without further premium concessions. It will also take time for the exact impact of the pandemic to reflect in mortality and morbidity rates.

Primary non-life insurance businesses will face challenges as their commercial clients adjust to the new normal.
We expect three main effects post-COVID, including the churn of existing policies; minimal new business; and the reduction of total risks on cover. Instead of seeing the insurance gap narrowing we risk greater inefficiencies in cover through 2021. The hardening rates market, which we expect to continue, is not an immediate consequence of the pandemic; but something that started in early 2017. From a global non-life reinsurer perspective, we have experienced higher than average natural catastrophe losses in almost each year since then. In South Africa there has been some significant loss events in recent years, most notably the Knysna fires.

What does 2021 have in store for non-life insurers and reinsurers? We see three opportunities, two of which apply to the life segment too. Firstly, we will play a vital role in rebuilding economies; secondly, we will be at the forefront of the ongoing transition to digital ways of doing business; and thirdly, we will reinvent traditional business models to accommodate new risks and obtain new clients. In the coming years, reinsurers will adopt data analytics, both to assess risk and make the necessary risk transfer decisions. We will also differentiate ourselves from our competitors by sharing this expertise with our primary insurer clients. There is already a focus among primary insurers to prioritise digital solutions for their customers and intermediaries.

With the implementation date of IFRS17 also drawing closer, many insurers are starting to work to understand what their position looks like under this new environment. We expect there to be a lot of reinsurance activity arising from this. Different insurers will have different needs and we recommend that they start engaging with reinsurers to understand what solution is best suited to meet their need.

Opportunities are tempered by the challenges that lie on the horizon. Success in 2021 will require us to pay close attention to the economy; to understand the hurdles in onboarding new clients; to retain our existing clients in a digital world; and to make business decisions based on even more solid data.

As a reinsurer our role remains to support the primary market in both life and non-life segments to design products that maximise efficiencies and enhance customer engagement and experience.