Pandemic changes insurance landscape | Sunday Observer

Pandemic changes insurance landscape

   Gehan Rajapakse   & Ainsley Alles
Gehan Rajapakse & Ainsley Alles

The Covid-19 pandemic has changed the insurance landscape and its modus operandi in Sri Lanka and there will be a surge in demand for insurance to protect individuals and their enterprises from similar pandemics in the future, insurance industry experts said.

Senaratne Insurance (Pvt) Ltd., Deputy Chairman and Insurance Consultant, Ainsely Alles said the areas of insurance that would trigger demand are loss of profits in operations and losses caused by  event cancellations, delays at construction sites, medical, life and workmen’s compensation.

“Local insurers will have to respond positively to this increased demand with conducive coverage wordings to ensure peace of mind for the public.

It will be a challenge to the local insurers as it is rumoured that the reinsurers are moving ahead with caution, due to the short term losses faced by them due to Covid-19, to exclude and/or limit the coverage for such pandemics in the future,” Alles said.

However, he said that such scenarios would be short term and that insurers will bounce back and provide the requisite insurance cover as insurers have been always receptive to customer demands.

“The Covid-19 posed a major challenge to the  insurance industry in Sri Lanka. However, the industry is resilient as it was when the tsunami struck and terrorism that plagued the country for a long period,” Alles said.

On the loss figures for the local industry, he said the actual numbers are not out as yet, although clients have lodged their claims with the insurance companies.

“Most of the losses emanate from business interruption insurance policies. Insurers do not envisage that claims would be lodged on other types of policies as a direct consequence of the pandemic,” he said, adding that in respect of business interruption policies too, the claims are for loss of gross profit caused by reduction in turnover during the curfew period.

Insurers are reviewing the ‘Infectious Disease’ extension provided under the business interruption insurance to check whether the claims fall within the scope of the clause.

He said in a pandemic situation, it would be medical insurance that would face the brunt of the claims but in this instance, as the Government ensured that the patients were taken care of by them rather than leaving it to the private health operators, there were no medical claims under Covid-19.

Internationally, it has been reported that Lloyd’s of London estimates the Covid-19 losses to be around $ 203 billion which includes claims, underwriting and claim expenses and investment losses.

Insurance and reinsurance giants such as AIG have estimated the losses to be in the region of $ 272 million, while Munich Re 800 million Euros, Swiss Re $ 280 million and Zurich Re $ 280 million.

Most of the losses are from property, engineering, business interruption and event cancellation, which include postponement of the Olympic Games.

“The outbreak of the pandemic has encouraged people to learn new IT skills in a virtual office concept. Insurers can view this positively and digitalise most of their operations to ensure internal efficiency and external effectiveness through customer centric enablers. Insurers face high internal cost and business acquisition costs, hence, digitalisation of end-to-end processes would positively impact cost structures, ultimately benefiting customers with reduced premiums,” Alles said.

However, he said that although technology was extensively used for internal efficiencies, it was not fully checked for robustness in a ‘work from home’ or virtual office scenario. Most of the insurers had business continuity plans in place but the pandemic tested its effectiveness. Yet, he said one must note that insurers ensured that the policies were issued, renewals confirmed, provided platforms to remit premiums, concessions to pay the premiums without lapsing, claims inspected and settled with the least possible delay. Insurance Association of Sri Lanka President Gehan Rajapakse said the current circumstances could be analysed in different ways. First, the ‘lockdown’ imposed due to the pandemic has obviously disrupted business activities and the usual negative impact on revenue, cash flows and profitability is being felt by the industry.

From an operational perspective the industry responded swiftly to put in place remote working arrangements and continued to serve customers effectively. In the medium term, with weak economic growth expected, disposal income will be limited and hence pose a negative impact on the purchase of insurance products that are not compulsory.This will be particularly applicable in the retail space. However, we do not expect to see any reduction in demand for insurance by corporates which will continue to transfer their risks to insurance companies as they did in the past.

Yes, the pandemic has in fact brought to the surface the importance of retail insurance products such as life and health products. As lifestyles change with increased disposable income these products will continue to have demand.

 On the role played by the industry to support crisis hit clients and businesses, he said the industry with the regulator put together a program in which policyholders have been given extended grace periods of up to 90 days to settle due premiums without  the policy lapsing.

During this period all the benefits of the policy are assured.

“As an industry we are concerned with retaining customers for the longer term and apart from the above I am sure companies will adopt their own strategies to retain customers who may have been affected,” he said.

 Rajapakse said the industry is geared to face fresh challenges in the future and added that the industry functions within the framework of a highly regulated framework with high levels of compliance to regulations and guidelines.

The industry has an excellent relationship with the regulator and together the industry has chartered a course of maintaining high standards of compliance. Apart from the commitment to regulatory compliance, the industry is managed by experienced, professional boards and management teams that do understand the responsibility they carry in managing insurance companies“The government through the NITF is a partner to the industry of ensuring the security of the industry and we believe it will continue to do so by taking action to diversify risks,” Rajapakse said.