By David Whitehouse
The costs of global pandemics such as COVID-19 exceed the capacity of the global insurance industry, making them effectively “uninsurable risks”, Beat Strebel, Swiss Re’s head of Middle East and Africa, tells The Africa Report.
Swiss Re has “no appetite” to insure or reinsure against pandemics, said Strebel, who is based in Cape Town.
Compensating businesses for the disruption they have suffered is a job for governments, with whom Swiss Re wants to engage to create public-private partnerships, he added. “We can’t do it alone.”
In South Africa, liability for losses caused by lockdown has become a legal issue.
Hospitality companies have taken South Africa’s largest general insurer Santam to court to challenge its attempts to avoid paying out for COVID-19 losses.
Santam argues that the pandemic itself and government’s lockdown response are two separate events.
That line of argument was rejected by the UK High Court in a separate case in September.
Santam says that it will welcome a South African ruling, which will provide legal clarity on which claims it can pass on to its own reinsurers. The judgement is expected by mid-November.
Santam is caught in the middle between business customers who have paid their premiums only to see claims refused, and the reinsurers who risk being finally liable for the bill.
One effect of the system of reinsurance, whereby insurers pass on their risks to global corporate syndicates with members such as Munich Re of Germany, France’s Scor or Swiss Re, is to separate public-facing, premium-collecting insurers such as Santam from the invisible points of final financial liability.
Swiss Re’s Strebel declined to say whether Swiss Re is one Santam’s reinsurers, or to comment on their legal dispute. “We have ability and willingness to pay all valid claims,” he said.
Swiss Re is the world’s largest reinsurer by premiums in 2019.
According to KPMG, Santam had the fastest growth in non-life insurance premiums among insurers in South Africa in 2019. Swiss Re, meanwhile, raised its share of the South African reinsurance market from 13% to 17%.
Swiss Re said at the end of July it had booked COVID-related claims and reserves of US$2.5b.
The company expects that to be enough to cover the majority of its final COVID-19 losses.
Claims on business interruption policies, Strebel said, have been lower in Africa than elsewhere due to lower penetration levels.
COVID-19, he added, does not alter Swiss Re’s long-term strategy of trying to increase insurance penetration in Africa. The continent, he said, has the largest “protection gap” in the world. “Everyone is needed at the table” to provide more risk coverage in Africa. “We can’t claim that we have been successful in cracking the market.”
A strong record on payments claims is one of the keys to greater take-up rates. Strebel noted that South Africa is a partial exception to the Africa’s low penetration. There are historical reasons for this.
During the Spanish flu pandemic of 1918-19, South African insurance advertising sought to attract new customers by highlighting the amount that had been paid out in life insurance claims.
Economic historians Stuart Jones and André Müller have shown that the pandemic was a trigger for the growth of the South African insurance industry.
In their book The South African Economy 1910-1990, they note that the ratio of insurance company assets to those of commercial banks in South Africa climbed from 42.7% to 75% between 1917 and 1933.
This century, the growth of Nigeria’s insurance industry has been hindered by customer perceptions that insurers seek to avoid paying out. The country’s penetration rates remain among the lowest in the world.
Bottom Line: Reinsurers who reject COVID-19 claims from local insurers risk undermining the future growth of the industry in Africa.
The Africa Report