MICROFINANCE PAPER WRAP-UP: “Never Waste a Crisis: How Sub-Saharan African Insurers Are Being Affected by, and Are Responding to, COVID-19;” by Lucia Schlemmer, Kate Rinehart-Smit, Jeremy Gray

This paper analyzes the effect that the COVID-19 pandemic has had on the insurance market in sub-Saharan Africa and the effectiveness of the responses of insurers, brokers and regulators. The authors conducted 32 interviews with representatives of insurers, insurance technology (insurtech) firms, reinsurers, and insurance and broker associations across 18 markets in the region to assess: (1) the impact that the pandemic has had on insurers’ daily internal operations; (2) the impacts on new product development and how the insured move through current processes; (3) the impact on insurers’ and customers’ finances; and (4) the responses of insurers, brokers and regulators.

While the complete impact on claims cannot yet be determined, claims on credit-life policies increased early in the pandemic. Meanwhile, claims on health and motor-vehicle policies fell initially and have rebounded partly. One positive effect of the pandemic is a greater push for digitization, which is expected to result in long-term efficiency gains through more frequent client usage of online channels.

One of the major challenges relates to which pandemic-related problems do and do not entitle an insured customer to make a claim. To justify a claim, a business generally must be within a certain radius of an outbreak, despite the fact that most businesses have been impacted negatively by the pandemic regardless of location. The authors posit that while this limitation may be helpful to insurers by lowering their payouts, there is a significant reputational risk to the industry if it is perceived as failing to contribute adequately to business resilience. Insurers’ flexibility on this point is limited, however, because coverage for claims by businesses that are not close to an outbreak is generally excluded from insurers’ reinsurance contracts.

Another challenge is that sales have dropped as in-person sales agents and brokers – the main distribution channels in sub-Saharan Africa – have been severely restricted in terms of mobility. This also has led to longer claim-processing times and payment delays, which have caused consumers to lose trust in insurers.

Digital sales remain limited because – as was the case before the pandemic – insurers in the region largely have not engaged in new digital product development. One reason is the failure of many regulatory frameworks to support digital services such as electronic signatures. On the positive side, the limited number of insurers that do collect premiums via digital channels have not been severely affected by COVID-19 because they have been able to move many of their in-person customers to their pre-existing digital channels.

Among the ways that insurers have moved toward digitalizing the market is through partnerships with mobile money services and offering consumers remote onboarding. To support this trend, insurers are looking to regulators to: (1) be more flexible regarding tasks needed for remote onboarding, such the acceptance of e-signatures; (2) categorize insurance as an essential service that hence would be exempt from certain COVID-19 restrictions; and (3) pledge to refrain from increasing insurers’ minimum capital requirements.

The authors note that certain regulators in sub-Saharan Africa have been receptive to insurers’ recommendations, including by enabling remote onboarding. Regulators also are preparing for consolidation within the insurance market, expecting that some insurers will fail under the financial strain of the pandemic.

By Madigan Ruch, Research Associate

This is a summary of a paper by Lucia Schlemmer, Kate Rinehart-Smit and Jeremy Gray; published by FSD (Financial Sector Deepening) Africa with support from Cenfri (formerly known as the Centre for Financial Regulation and Inclusion) and UK Aid; July 2020; 36 pages; available at https://www.fsdafrica.org/wp-content/uploads/2020/07/Impact-of-COVID-19-on-insurers-10.07.201.pdf

Additional Resources

FSD Africa homepage
https://www.fsdafrica.org/

Cenfri homepage
https://cenfri.org/

UK Aid homepage
https://www.ukaiddirect.org/

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