2022: High Expectation of Accelerated Recovery for Insurers

Despite the fears of the effect of new variants of COVIS-19, there are indications that 2022 would kick-off accelerated recovery for the insurance industry, writes Ebere Nwoji.

Insurance operators around the world are very optimistic that despite lingering concerns about COVID-19 variants, namely Delta and Omicron variants, there is going to be accelerated economic recovery and additional digital technology investments which would generate significant growth for the insurance sector in 2022.

The insurers said the market in terms of growth prospects would be fairly bullish during the year, citing the fact that they have planned to increase investments in enabling technologies and evolving talent models to build on the digital and virtual platforms that would sustain their operations and maintain their engagements with customers.

They however predicted that there would be multiple challenges for insurance leaders to tackle during the year beyond efforts to adapt to the pandemic’s aftermath.

According to the insurers, these challenges range from economic hurdles such as the potential for sustained inflation; to sustainability concerns including climate risk, diversity, and financial inclusion; to rapidly evolving consumer product and purchase preferences.

They also pointed out the fact that future of work considerations have also multiplied as carriers sought to create flexible return-to-office strategies while simultaneously struggling to retain and recruit high-level talent in a very competitive job market—particularly for those with advanced technology and data analytics skills.

The Deloitte Center for Financial Services, in its 2022 outlook for insurance said insurers are increasingly dependent on emerging technologies and data sources to drive efficiency, enhance cybersecurity, and expand capabilities across the organisations. They, however, said most should also focus on improving the customer experience by both streamlining processes with automation as well as providing customised service where needed and preferred.

The publication stated that on a more fundamental level, many carriers should also be taking steps to bolster trust among stakeholders to boost retention and profitability.

It added that this might be achieved in part through greater transparency in how insurers collect and utilise personal data. It recommended that the insurers could also become more proactive in seeking comprehensive solutions to big picture societal problems—such as mitigating the financial impact of future pandemics and closing coverage gaps for natural catastrophes.

Global insurance premiums
The Swiss Re institute, in its sigma report projected that Global insurance premiums would exceed $7 trillion for the first time by mid-2022 with the ongoing rate hardening in non-life insurance commercial lines providing further support.

The report projected that insurance premium growth would reach 3.3 per cent in 2022 and 3.1 percent in 2023 on the back of rising risk awareness in the life and non-life segments pushing consumers and businesses to seek protection following the shock of the COVID-19 pandemic and above-average natural catastrophes.

The report further said global supply chain disruptions had highlighted the need for better protection to improve societal resilience.

It also said climate risk was still on the frontline given extreme weather events, and above-average insured losses from natural catastrophes which had added urgency to the race to net-zero carbon emissions.

It further said as the industry absorbed COVID-19-related claims, above-average catastrophe losses and high inflation, it expected a strong rebound from 2022.

“Non-life underwriting profitability should recover fast as insurers internalise expectations of higher inflation, and rates in commercial lines rise again.

“Advances in COVID-19 vaccinations should strengthen profitability after a year of high mortality for life insurers, investment returns will likely be challenged by ongoing low-interest rates that do not fully compensate for inflation, making underwriting discipline crucial”, the report said.

According to Swiss Re group chief economist, Jerome Haegeli, prevailing market conditions suggest that positive pricing momentum would continue across all lines and regions. Inflation-driven higher claims development in all lines of business, continued social inflation in the US and persistently low interest rates will be the main factors for market hardening.

Nigeria Insurance Sector Outlook
Here in Nigeria, insurers are hopeful that with the appropriation of N24.7 billion by the federal government in the proposed budget as premium for Group Life Insurance of government workforce, the year is looking good for insurers.

The insurers said the above amount represents 65 per cent increase to the N15 billion appropriated by government in 2021.

The federal government had in its appropriation bill 2022 released by its Budget Office under Group Life Assurance for all MDAs including DSS/insurance of sensitive assets/corpers plus administration/monitoring,” stated that N24.7 billion was appropriated as premium for 2022.

Insurers are of the view that if the federal government would release the above figure at the right time during the year, they will have a smiling fortune within the year.

The Managing Director Afriglobal Insurance, Mr. Casmir Azubuike, told THISDAY that he was impressed by the new attitude of government towards insurance especially Lagos State Government which has in recent times seen insurance as a priority for its workforce.

He said if federal government would do the same regarding the insurances of its assets and Group Life Insurance of its workers, insurers would have a good harvest this year.
Section 4 (5), of the Pension Reform Act, 2014 states that “Every employer shall maintain a group life insurance policy in favour of each employee for a minimum of three times the yearly total emolument of the employee and premium shall be paid not later than the date of commencement of the cover.”

Challenges Facing the Sector
On the negative side, Deloitte in its report however forecasts that insurers might face mounting bottom-line challenges beyond pandemic resurgence.

According to the report, beside the potential for new COVID-19 strains to hinder or even derail economic recovery and insurer growth prospects in any number of countries, insurers are likely to grapple with several fundamental bottom-line threats in the new year.

It said to start with, rising inflation combined with interest rates could turn out to be major obstacles to improving insurer results.

“Rapid increases in demand for goods, materials, and labor, as well as ongoing supply chain disruptions have been raising claims costs for personal and commercial property losses.17 Corresponding price hikes for construction materials, rental vehicles, and auto parts (including semiconductor and computer chips for smart cars) are among the expenses threatening to drive up insurer loss costs into 2022.18 This factor alone is likely to keep pushing property and casualty insurance prices higher for buyers.

The Deloitte report observed that interest rates have remained relatively low around the world despite rising price and labor cost trends, as governments look to avoid undermining the recovery’s momentum and perhaps risk their economies slipping into recession. It said despite that, this could undermine investment returns for the industry as a whole, while hindering growth and profitability of interest-rate–sensitive L&A products.19

“Regulatory costs also will likely keep mounting. For example, global carriers are entering the home stretch in concluding preparations to comply with International Financial Reporting Standards 17 (IFRS 17), determining how insurance contract assets and liabilities are presented on company balance sheets. Implementation of IFRS 17, in January 2023, could cost global insurers between US$15 billion and US$20 billion when all is said and done, according to a survey
of 312 carriers from 50 countries by Willis Towers Watson.

In Nigeria, insurance managers have expressed fears that rising inflation rate and declined purchasing power of the people might affect their appetite for insurance.
According to the insurers, this is because before now, Nigerians were alien to insurance and any little adjustment needed in their priority list always affects insurance.

They expressed fears that with rising cost of things, many Nigerians who have developed interest in insurance in recent times might lose such interest.
They were however optimistic that enforcement of compulsory insurance if well carried out by government and its relevant law enforcement agents would cover the gap.