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How COVID-19 has impacted the life insurance industry

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14 February 2022: Insurance: Three short years ago, the idea of a pandemic that would change the world as we knew it was not even a blip on the radar. Since then businesses ranging from global giants to family-owned businesses and entrepreneurs have had to adapt and pivot their business strategies to better meet the needs of the new world post-COVID-19. The life insurance industry has proved no exception.

Higher mortality rates, job losses and increased medical costs are just three of the major consequences the industry has had to contend with. According to the Association for Savings and Investment South Africa (ASISA), life insurers paid out a total of R47.6 billion in claims between 01 April 2020 and 31 March 2021. This represents a 64% increase in the value of life insurers’ claims paid compared with the previous 12-month period, when R29.1 billion in claims was paid out. Hollard Life Solutions paid out the most death benefit claims in its 41-year history.

There have been several changes in the new reality that life insurers have had to adapt to. These include:

Consumer needs: The COVID-19 pandemic has also increased consumer awareness of the importance of life insurance. In the middle to lower income segments, life insurance may well have moved from a “nice-to-have” to an essential expense. The sobering reality is that COVID-19 has highlighted how life insurance can enable families to weather the financial turmoil and meet their financial obligations in challenging times. With declines in disposable income and rising debt, customers are increasingly price conscious, with an affinity for value. They are also prioritising essential goods and delaying semi-durable goods purchases.

As South Africans experience a health and economic crisis, 48% are worried about the economy, 46% about job security, and 25% about their health. The significant national mortality increase has placed a greater strain on family structures.

Given the changing customer healthcare needs and increased mortality, policyholders and customers have perceived an increase in the value of life insurance policies. Insurance companies have invested in consumer education programs over the years to attempt to drive this behavioural shift and the pandemic has helped to accelerate it.

Digitisation: COVID-19 restrictions and developments in technology mean that consumers are looking for accessible products, efficient personalised processes, and greater choice when it comes to life insurance products. A Centric Consulting survey revealed that 85% of insurance CEOs felt the pandemic accelerated the digitisation of their company’s operations. We have also seen traditional life insurance companies reviewing their business models to embrace fintech as they look for new ways to engage with a more digitally savvy population which demands real-time engagement. The accelerated adoption of digital channels means that consumers have greater choice in terms of sales, service and collection channels. Rapid transformation of the offering to meet customer needs will ensure that insurers remain relevant in a changing environment.

Product development: The pandemic highlighted the consumer need to remain insured while working with a limited, infrequent budget. Innovative products such as needs-matched life insurance are now coming to the forefront, while gap cover has become increasingly important for consumers. According to the Council for Medical Scheme’s latest annual report, medical scheme members paid as much as R32.8 billion towards out-of-pocket medical bills in 2020 even though overall medical expenses decreased because of the pandemic. Hollard Life Solutions recently announced a partnership with Netcare and one of the offerings is the NetcarePlus GapCover product which is a gap product will pay out the shortfall experienced if the medical scheme has paid the first portion of the emergency medical claim . This innovative solution could well reduce the healthcare funding challenges many South Africans grapple with.

Solvency ratios: Insurance companies are required to keep a significant amount of capital so that they can meet their financial and solvency obligations in a time of need. Life insurers are adopting a more cautious approach in terms of their solvency ratios. The South African life insurance industry held assets of R3.23 trillion at the end of 2020, while liabilities amounted to R2.89 trillion. Although the industry remains well capitalised, this is something insurers will have to monitor. 

Cybersecurity: The increased adoption of digital mechanisms by consumers means that their information and virtual identities are at greater risk of vulnerability. This has meant that consumers need to be more attentive to the cybersecurity risks. Hollard has partnered to offer a cyber insurance proposition to the market for this reason. Similarly, insurers also need to ensure the protection of customer data.

Given the changing insurance landscape, insurers are constantly identifying better ways to connect with customers and retain them. In addition, there is greater pressure to constantly innovate to meet the ever-changing consumer needs.