Businesses worldwide have been affected by the slowdown in economic activity due to the Covid-19 induced lockdowns. Despite the relaxation of restrictions in most countries, most firms are still nursing the wounds of the previous hard lockdowns.
But, the insurance industry has shown remarkable resilience in the face of the Covid-19 pandemic and adverse operating environment coupled by high inflation, falling exchange rate, reduced consumer demand etc. Arguably, the insurance industry is dominated primarily by basic affordable lines including motor insurance in the non-life market and funeral cover in the life market.
With Covid-19 pandemic causing disruption and uncertainty in various industries, discretionary spending has come under scrutiny amongst consumers. Insurance is one area that is particularly being scrutinized in terms of household and business budgets, as consumers and business owners look to cut costs during these times. Many people lost their jobs as a result of mandatory lockdown raising the unemployment rate in the country which reduced household consumption (with insurance included).
The Life segment struggled the most during the Covid-19 pandemic. The life insurers were mainly affected by high mortality rates and also the pandemic has had a significant impact on the value of new business. However, non-life insurance or general insurance posted strong performance buoyed by lower claims (for example, given that people were teleworking and travelling less, there have been fewer claims in property insurance and casualty insurance).
The impact of the pandemic on the insurance sector cannot be detached from the operating environment that is the political, economic, and social challenges facing the country. The operating environment also has a significant impact on the overall performance of the insurance industry. High inflation emanating from exchange rate volatilities affect the industry’s underwriting business. Typical of the Zimbabwean situation annual inflation is not matching up with wages, this erodes the purchasing power of a consumer who is then forced to streamline his budget removing insurance from the priority list as it will be deemed a luxury. According to the Consumer Council of Zimbabwe, in September 2021, a family of six required $41 000 to sustain its monetary needs per month. This is in contrast to most civil servants earning between $24 000 and $27 000, which is way below the average consumer basket budget.’
The Zimbabwe dollar has been lowly deteriorating its value during the course of the year as it now trades above 105 against the dollar. The monetary targeting framework has gone a long way in containing the quantum of money in the economy, which in turn has stabilised the exchange rate and lessened inflationary pressures in the economy. The exchange rate stability allows the insurance industry players to make long term investment decisions, allows for the efficient allocation of resources, improves economic growth predictability, and ensures local currency value preservation.
Poor macroeconomic conditions have seen Zimbabwe experiencing low levels of insurance uptake over the years, Zimbabwe’s insurance penetration rate has been on a free fall since achieving its highest insurance penetration rate of 5.7% in 2004 to its lowest of 1.5% in 2016. This is very low when compared to other markets on the wider African continent such as South Africa (14.3%), Namibia 8.71% and Morocco (3.83%), according to Swiss Re Sigma’s current report. The industry’s regulator IPEC set a target of reaching an insurance penetration rate of 7% by 2022 next year.
There major reasons for the low level of insurance penetration in Zimbabwe include: low levels of insurance awareness; lack of confidence (which reduces the uptake of insurance policies); large under-served population of both individuals and small-medium businesses; limited recognition of critical sectors such as agricultural insurance, gaps in data and skills, and limited innovation and adoption of technology.
Considering figures of real economic growth and insurance density, there is potential for substantial growth of the insurance industry in Zimbabwe.
Going forward, the Zimbabwean economy is recovering from the Covid-19 crisis. The rapid deployment of vaccines to the populace and fiscal stimulus, including direct transfers to households and businesses, have fuelled a better economic recovery in 2021. The momentum is likely to be maintained going forward in 2022.
Zimbabwe has administered at least 6,586,503 doses of Covid-19 vaccines so far. By 30 November, 2021 the number of fully vaccinated people reached 2.82 million which is circa 20% of the national population.
For life insurers, advances in Covid-19 vaccinations is likely to strengthen profitability from 2022, after a year of high mortality rates in 2021. On the other hand, non-life underwriting’s bottom line should improve from 2022 as insurers internalise expectations of higher inflation emanating from weakening exchange rate and increased demand.
The pandemic has resulted in a giant leap for digitisation. The digitisation driving is transforming sales and service of the industry. Insurance customers have quickly adapted to online channels and are progressively preferring to do transactions digitally or online. This has created opportunities for insurers along the whole value chain, from acquiring new consumers and providing consulting advice to underwriting, generating insurance policies, processing payments and after-sale services.
A paradigm shift has been brought about by the pandemic as rising risk awareness is generating more demand for insurance protection. A lot of people have purchased new policies following the outbreak of Covid-19, and they are more engaged with insurance companies. Commercial clients’ awareness of risks has increased, including from disruptions to supply chains given the lockdowns, and cyber risks, as employees work increasingly from home.
So the battle with Covid-19 is far from over. The uncertainty around the emergence of more transmissible Covid-19 variants with the recent ‘Omicron’ and the ability of vaccines to keep the pandemic under control suggests that the Zimbabwean economic recovery may be more uneven and protracted than anticipated and this adversely affects the insurance industry.
Above all, the most important thing for the long term welfare of the local business sector depends on a successful vaccination campaign and a return to normalcy – Harare