Picture: 123RF/GO PIXA
Picture: 123RF/GO PIXA

SA’s life insurance industry is likely to suffer a “mega-blow” from Covid-19 that will be twice as bad as the impact of the 2008 global financial crisis, according to a report by McKinsey. While the rest of the insurance sector will be less badly affected, it will take four years before it recovers to pre-pandemic levels.

McKinsey’s modeling indicates that the gross written premiums (GWP) of life insurers are likely to contract by 18% for 2020 and 2021 combined as a perfect storm of poor market returns, reduced customer demand, declining disposable income and distribution disruption hurts the industry. That compares to a 9% decline in GWP for the industry in 2008 in the wake of the global financial crisis.

McKinsey said new life insurance business could fall 25% while renewal premiums may drop 12% as consumer spending remains under pressure.

“The pandemic’s negative impact on the insurance premium pool is expected to be roughly double that of the 2008/2009 recession — and the sector will take twice as long to bounce back,” McKinsey said in a report.

The National Treasury now expects SA’s economy to contract by 7.8% in 2020 as the pandemic and subsequent lockdown regulations forced dramatic curbs on business activity and consumer mobility. While the Treasury expects the economy to expand by 3.3% in 2021 this will be from a very low base given the extent of the economic decline in 2020, which saw 2.2-million jobs shed in the second quarter alone.

Across all insurance lines, McKinsey estimates the GWP pool will fall 15% over the course of 2020 and 2021, only returning to pre-pandemic levels in 2024. The general insurance and motor insurance sectors are expected to fare relatively better, with GWP volumes falling 5% and 8%, respectively, over the same timeframe.

“Overall, the general insurance book will be spared the mega-blow facing the life insurance sector, owing to corporate customers holding on to cover in the formal sector and due to motor insurance typically being requirement for vehicle financing,” said McKinsey.

While McKinsey said the life insurance sector is facing particular headwinds from reduced referrals as brokers battle to prospect for new clients in the wake of the pandemic, intermediaries are gradually adapting to new digital sales tools.

theunisseng@businesslive.co.za

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