The COVID-19 pandemic has affected almost all business sectors worldwide, and the insurance industry is no exception. From setting new guidelines for remote employees to analyzing financial projections, insurance companies have multiple areas to look after to gain stability once again. This is especially evident for companies in South Africa, which may be among the sectors that have been hit the hardest by the pandemic.
How Insurance Companies are Doing in South Africa
There is a big concern about how the COVID-19 pandemic will affect the financial outlook of South African insurance businesses. Considering the number of companies that will be forced to close and even more number of workers who will lose their jobs, the industry's future is grim. Lowered interest rates by the central bank will affect monetary holdings, and we can also expect to see a considerable number of bankruptcies happening. Equities have been negatively affected as well, while property holdings are reliant on growing economies for sustainability. With the looming economic slowdown, portfolios will not perform well.
The concern over the viability of the insurance industry due to the pandemic has ultimately resulted in the Prudential Authority halting the issuance of new licenses for six months.
The Current Debate & the Long-term Effects
There is currently a heated debate between insurers and policyholders in South Africa about the extent to which insurers should cover for business losses caused by the pandemic. Insurers are finding it difficult to cover for all the damage done and are trying to narrow down their liabilities.
The insurance industry will face a lot of operational and financial headwinds. While each impact may differ based on the company, there are some inevitable long-term effects:
- Interest rates and falling stock markets will have a big impact on reinsurers.
- It will take a while until all the insurance claims have been evaluated, paid, and notified to the correct insurers.
- Reinsurers with a high concentration of classes of business will be much more impacted by the pandemic, in comparison to those with diversified portfolios.
Insurance companies will have to deal with customers and businesses that expect compensation from their coverage. Paying all of them will be financially crippling, but not paying them will be damaging to their reputation. The insurance companies must look for a balance, so they can cater to the different needs without disregarding their current situations.
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