Covid-19 and the future of life assurance and retirement benefits

Press Office: Minet

By Herman Male, Senior Account Executive Life & Pensions, Minet Uganda

The outbreak of Covid-19 has disrupted the global economy. The progress of the disease and its economic impact is highly uncertain which makes it difficult for policymakers, businesses and households to plan ahead of time. Little is known about the medium- to long-term, micro- and macro-economic effects of such global pandemics. But the recent Covid-19 outbreak places substantial urgency on trying to gauge the likely economic impact. In this article, we use a history of pandemics and the existing data on life assurance to project the future.

Previous pandemics that were traced with at least 100,000 deaths affecting the globe are illustrated in the above table.

As at 18 May, the number of deaths caused by Covid-19 had reached 311,847 across the globe and the number of confirmed cases tolled to 4,618,821 people according to the World Health Organisation. Several researchers have painted a picture of the short- and long-term impact of this pandemic on the life assurance companies and retirement benefits schemes and it is against this background that we aim to navigate the Covid-19 pandemic. Since life assurance and retirement benefits are a critical part of one’s financial wellness, this article relates to both individuals and corporations.

Many studies have found that population health, as measured by life expectancy, infant and child mortality and maternal mortality, is positively related to economic welfare and growth. In terms of economic welfare, this article will look at individual and corporation financial wellbeing. Life assurance and retirement schemes are some of the investment vehicles that individuals subscribe to with the major aim of postponing current consumption to the future for themselves or their beneficiaries in case of unfortunate events like death, critical illness, temporary and permanent disabilities, or loss of income due to illness or retirement.

The current pandemic has left many with the following questions:

  • If I contract Covid-19, do I have the financial muscle to support myself and my family?
  • If I die due to Covid-19, will my beneficiaries have something to survive on?
  • Will my retirement benefit yield better return as earlier projected?

Africa has seen a dramatic increase in its population since 2000: booming urbanisation, rising consumer demand and an expanding middle class with more disposable income. This cohort is becoming more aware of the value of insurance products as its spending on life insurance products, health care and discretionary items also increases. According to Sigma’s latest report, the African insurance industry is doing well: from 2017, the continent’s premiums have been rising by an average 12.26% against 4.01% on the global level.

According to many executives interviewed for the 2019 Africa Insurance Barometer, Africa’s insurance markets suffer from excess capacity: technology continues to provide new avenues for innovation, thus bridging geographical distances, increasing scale and improving efficiency.

We at Minet, a trusted Pan-African risk advisor with a vast experience in this market, observe that members or households without a single life assurance cover might get in financial distress in case one or some of their members contract the virus.

Covid-19 impact on life insurers and retirement benefits

A large number of claims might emerge from the effect of this pandemic due to death, incapacitation or critical illness if insurers add this ailment to the list of critical illnesses. Claims might emerge due to death of policy holders (this applies to all life covers), loss of jobs (in the areas of credit life assurance or mortgage protection cover), and income replacement in the event that policy holders are incapacitated or rendered unable to function as normal. Insurers and reinsurers will have to feel the pinch as the entire globe is affected. How seriously insurers will be affected depends on how long the pandemic will last.

Insurers will not only be exposed to large liabilities, but their assets may lose value when needed most. Equities and fixed income assets like treasury bonds and treasury bills in which most life assurance companies are over weighted, are likely to suffer as business is affected by the pandemic. Economies are likely to move into a recession for a number of years following the pandemic. SARS-CoV outbreak in 2003 demonstrated how even a short-lived pandemic can impact consumer spending, confidence and investment. The economic cost of SARS was estimated to be about $40 billion.

The UN’s trade and development agency (UNCTAD) advised that this pandemic is likely to cost the global economy $1 trillion in 2020 which is 1.1% of the estimated global economy GDP ($90.5 trillion). Various monetary and fiscal measures have been deployed by several central banks to curb the effect of the pandemic which include, but is not limited to, reducing interest rates, unlimited loan guarantees and tax reliefs. Social policies like social distancing and lockdown have furthermore been deployed to mitigate human to human transmission. The stated policies are likely to impact the return on investment by insurers and retirement benefit schemes. Loss in value of assets, mainly in foreign currencies, is unavoidable due to foreign exchange risks which are on a rise due to the lockdown policy. Schemes like NSSF or any other retirement benefit schemes which diversified in equities are likely to have a slowdown in their net investment income (NII) due to the bearish nature of equity prices at the moment. And, if they are to perform to their expectation after the quarter ended 31 March 2020, they will need to make strategic moves like buying into lowpriced equities in corporations whose foundations are believed to be strong for long term returns, or buying government securities with higher rates of return than the commercial bank rate.

In conclusion, individuals and corporations are advised to;

  • Keep a close watch of the market; throughout history, markets have always come up again after a downfall in due time;
  • Understand their risk tolerance in order to allocate assets appropriately;
  • Diversify their asset portfolio to hedge against any risk that might affect returns;
  • Diversify; spreading investments over a wide variety of asset classes can help even out the ups and downs of the market; and to
  • Plan for the future by knowing their cash inflows and outflows, their current and non-current assets, and their liabilities (demonstrated by a balance sheet, income statement or cashflow statement).

Minet is a trusted pan-African advisor that meets the uncertainties of tomorrow by delivering risk and human capital solutions today. As the largest Aon Global Network Correspondent, Minet has access to a network of over 50,000 colleagues in 120 countries as well as to proprietary data, research and analytics which enable us to manage and secure the risks of tomorrow and provide clients with an unrivaled advantage. For more information, please visit