By Chiamaka Ajeamo, [email protected]
As new business year begins, insurers round the world are hopeful and full of expectations that there is going to be speedy economic resurgence and increased technological investment which will birth huge growth for the insurance industry in 2022 despite concerns about new COVID-19 variants.
According to the operators, the growth projections for 2022 shows the demand for insurance would keep rising worldwide and the industry will be fairly bullish notwithstanding concerns about the potential effects of COVID-19 variants namely: the Delta and Omicron on business recovery and return to workplace methods.
They further revealed plans to increase investments in enabling technologies and evolving talent models to build on the digital and virtual platforms that sustained their operations and maintained their engagement with customers throughout the worst of the pandemic.
On the flip side however, it is estimated that there would be numerous challenges for insurance operators to handle during the year beyond measures to adapt to the pandemic’s aftermath.
According to the Deloitte Centre for Financial Services, in its 2022 outlook for insurance, these challenges range from economic hurdles such as the potential for sustained inflation; to sustainability concerns including climate risk, diversity, and financial inclusion; to rapidly evolving consumer product and purchase preferences.
The report disclosed that insurers are increasingly dependent on emerging technologies and data sources to drive efficiency, enhance cybersecurity, and expand capabilities across the organisations; adding that most companies need to focus on improving the customer experience by both streamlining processes with automation as well as providing customised service where needed and preferred.
It equally stated that the future of work considerations have also multiplied as carriers sought to create flexible return-to-office strategies while simultaneously struggling to retain and recruit high-level talent in a very competitive job market—particularly for those with advanced technology and data analytics skills.
On more critical grounds, the report advised that many carriers should also be taking steps to strengthen trust among stakeholders to boost retention and profitability.
It explained that this might be accomplished in part through greater transparency in how insurers collect and utilise personal data, while recommending that insurers could also become more proactive in seeking comprehensive solutions to big picture societal problems—such as mitigating the financial impact of future pandemics and closing coverage gaps for natural catastrophes.
Global insurance projections
In its latest report, Swiss Reinsurance Institute stated that for the first time in history, global insurance premiums will exceed $7 trillion by mi- 2022. Premium growth would reach 3.3 per cent in 2022 on the back of rising risk awareness in the life and non-life segments pushing consumers and businesses to seek protection following the shock of the COVID-19 pandemic and above-average natural catastrophes; it noted.
It added that it also expects rising demand for insurance worldwide, with consolidated premiums for all lines rebounding by 3.3 per cent for full-year 2021 and 3.9 per cent in 2022, compared to a drop of 1.3 per cent in 2020.
Breaking down the industry’s two main components, the report stated that; global life insurers, benefitting from heightened consumer risk awareness due to COVID-19, are expected to post above average premium growth rates of 3.8 per cent in 2021 and 4.0 per cent in 2022.
On the other hand, global non-life premium growth is forecast at a more modest 2.8 per cent in 2021, jumping to 3.7 per cent in 2022 as more people are likely to return to their workplaces and business recovery is expected to pick up speed.
“Commercial insurance sales are expected to bounce back more robustly than in personal non-life segments, driven by accelerating business activity.
“Non-life underwriting profitability should recover fast as insurers internalise expectations of higher inflation, and rates in commercial lines rise again.
“Advances in COVID-19 vaccinations should strengthen profitability after a year of high mortality for life insurers, investment returns will likely be challenged by ongoing low-interest rates that do not fully compensate for inflation, making underwriting discipline crucial”, the report said.
According to Swiss Re Group Chief Economist, Jerome Haegeli, prevailing market conditions suggest that positive pricing momentum would continue across all lines and regions. Inflation-driven higher claims development in all lines of business, continued social inflation in the US and persistently low interest rates will be the main factors for market hardening.
Nigeria Insurance Industry Outlook
For the Nigerian insurance industry, operators are equally optimistic about what 2022 brings. With the appropriation of N24.7 billion by the federal government in the proposed budget as premium for Group Life Insurance of government workforce, 2022 seems to be looking bullish for insurers.
According to underwriters, the above amount represents 65 per cent increase to the N15 billion appropriated by government in 2021.
The Federal Government had in its appropriation bill 2022 released by its Budget Office under Group Life Assurance for all MDAs including DSS/insurance of sensitive assets/corpers plus administration/monitoring,” stated that N24.7 billion was appropriated as premium for 2022.
These operators affirmed that if the federal government would release the above figure at the right time during the year, the insurance market will significantly make fortune within the financial year.
Also, stakeholders are of the view that the sector will record profits if the compulsory insurances are adopted by Nigerians and the government at all levels. It will be noted that the National Insurance Commission (NAICOM) last year, engaged various states and stakeholders on the need to embrace the mandatory insurances; however, lack of enforcement has been the major challenge towards achieving this project.
However, with recent engagements with state governors by NAICOM under the supervision of the Commissioner for Insurance, Sunday Thomas, there is much expectation and hope that these insurances will be adopted in states.
Kano State and Lagos have shown strong commitment to increase enforcement of these risks, as some of the state governments have formed strategic committees with NAICOM.
The compulsory insurance includes: Motor Third-party Insurance of section 68 of the Insurance Act 2003; Buildings under construction of section 64 of the Insurance Act 2003; Occupiers liability insurance of section 65 of the Insurance Act 2003; Group life insurance in line with the Pension Reform Act 2004 and Health Care Professional Indemnity Insurance-under section 45 of the NHIS Act 1999.
Hurdles to encounter
In its report, Deloitte highlighted challenges insurers are likely to face in 2022. According to the report, insurance companies are likely to grapple with multiple bottom-line threats in the year.
It said to start with, rising inflation combined with interest rates could turn out to be major obstacles to improving insurer results for the year.
“Rapid increases in demand for goods, materials, and labour, as well as ongoing supply chain disruptions have been raising claims costs for personal and commercial property losses.17 Corresponding price hikes for construction materials, rental vehicles, and auto parts (including semiconductor and computer chips for smart cars) are among the expenses threatening to drive up insurer loss costs into 2022.18 This factor alone is likely to keep pushing property and casualty insurance prices higher for buyers.
The report concluded that interest rates have remained relatively low around the world despite rising price and labour cost trends, as governments look to avoid undermining the recovery’s momentum and perhaps risk their economies slipping into recession. It said despite that, this could undermine investment returns for the industry as a whole, while hindering growth and profitability of interest-rate.