- Insurers say they’ve used the money saved from lower vehicle claims to provide relief and premium discounts to customers.
- While they had fewer vehicle claims in 2020, the industry says it forked out more money on credit life, business interruption and travel-related claims.
- The industry is also expecting reinsurance premiums to shoot up.
On Tuesday, a research report by the economic advisor to the Optimum Investment Group, Roelof Botha, showed that the sector has been making super-profits since the Covid-19 pandemic hit SA’s shores, thanks to lower-than-usual care and property claims.
Kavisharm Dheepnarayan, an equity analyst at Benguela Global Fund Managers, said looking at the big insurers’ vehicle insurance claims for 2020, it’s clear that they benefited from lower movement caused by the lockdown restrictions.
He pointed to Miway’s reported gross underwriting margin as an example. The insurer’s underwriting margin – profits insurers make from collected premiums after expenses and claims – improved from 14.3% in 2019 to 16.5% in 2020.
But it’s not black and white
However, Dheepnarayan pointed out that insurers like Santam and Discovery Insure used some of the money they saved from lower claims to provide a premium discount to their customers.
While insurers are currently sitting on bigger reserves, Dheepnarayan said they are anticipating higher reinsurance premiums due to Covid-19.
“We know new business volumes have come under pressure due to lower sales staff activity. Premiums are not expected to automatically decrease due to lower claims. We do, however, expect this to happen gradually, driven by the highly competitive dynamics in SA’s short-term insurance space,” said Dheepnarayan.
He said new product innovations from players like Discovery Insure might force everyone to review their premiums to stay competitive.
Dheepnarayan believes that should work-from-home become more prevalent in the longer term, the phenomenon of people driving less will negatively impact short-term insurers.
“While we agree short-term insurers are benefiting from lower vehicle insurance claims, we are, however, seeing this benefit offset to some extent by business interruption payouts,” added Dheepnarayan.
He said it looks like it will be a tricky balancing act for the short-term insurers for a while.
We aren’t greedy
The industry’s representative body, the South African Insurance Association (SAIA), said its members did their bit by providing premium holidays, premium discounts and fast-tracked claim processes where possible.
SAIA said while it acknowledges that areas like vehicle insurance claims might have performed better during the pandemic, insurers forked out more money on claims in other insurance lines, such as credit life and trade credit, travel and engineering.
The organisation added that its members have paid a large number of the contentious business-interruption claims, and only a few complex ones are waiting for legal certainty.
Discovery Insure CEO Anton Ossip said not all insurers are charging their customers the same premiums they did before the pandemic.
He said Discovery Insure has indeed benefited from the drop in the mileage driven by its Vitality Drive clients since the lockdown began, and its overall loss ratio has reduced as a result. But the insurer passed that benefit on to its customers by providing additional rewards to those who have been driving less, over and above the Vitality rewards for those who drive well.
For example, those who drive less than 250km in a month get a quarter of their monthly premiums back and a 15% cash-back benefit is given to those who clock less than 500km a month.