The pandemic will push insurers in the region to redesign their business models taking into consideration the different components such as customer value, profitability, resources and operations.
During a panel discussion at a Financial Times digital conference, WHO chief scientist Soumya Swaminathan warned that the process of controlling the coronavirus pandemic could take about four to five years. Alarmed by several variables unfolding which will ultimately determine how long this pandemic will continue to cause havoc, she said, “Suppose we have a vaccine and we can cover all the world’s population, which takes maybe three to four years, I would like to say it can take up to four to five years before we can control it.”
Despite the diversity of perspectives, the WHO remains a basic reference in this field. The statement from its chief scientist came as a shock, but given that this virus has become an unavoidable reality, we must learn to coexist and adapt through health and social measures.
The pandemic, and consequently, the measures taken to contain it have had an impact on insurers in many ways. First are the negative effects of a temporary nature, which are expected to cease as economies start to reopen and businesses are allowed to resume their normal activities. Second are the negative effects of a permanent nature, which will continue even after businesses start operating.
Challenges
Life insurers have received a double blow – due to losses arising from the large number of COVID-19 deaths and the collapse of the value of return on government bonds.
In addition, there is the sharp deterioration in investment performance as a result of declining interest rates, down to a record low of 0% at one point.
We are witnessing the beginning of a transformation in this sector, where, against the increase in the number of people who want to insure their lives, many life insurance companies in the US, for example, are hesitant to accept new customers. Temple University assistant professor in the department of risk, insurance and healthcare management at the Fox School of Business Tim Luedtke expects that insurance companies will stop accepting new applicants until the virus is over in the US.
It should be noted that associations and syndicates representing the insurance sector across the world, including the Arab countries, have provided material assistance to governments in the face of this pandemic, as a contribution to the economy and society.
The insurance sector in the Middle East, though small in relation to European countries and the US, has managed to deal with the situation by adopting Western-style responses. There are some clear differences in performance and effectiveness, due to the difference in size, capital and capabilities – both technical and technological.
A new direction
The pandemic will push insurers in the Middle East to a basic and effective restructuring. Companies will have to redesign their business models with all its components: customer value, profitability, resources and operations. The redesign of the company’s business model entails a review of its short, medium and long-term goals, as well as its strategic plans, and public and private approaches.
Insurers in the region should increase their capital and develop working capital management in line with the new business model and the company’s strategic direction, in addition to the emerging conditions in the markets. The efficiency of cash and liquidity management is a top priority for working capital management, and the company has to find ways to enhance its liquidity and cash flows, dispose of unproductive assets and unprofitable investments, and reconsider the company’s contributions in subsidiary and associate companies.
Insurers should also consider restructuring their short- and long-term obligations, within the constraints of their capital structure. Additionally, a special budget has to be allocated for studies, training and performance development to provide the best products to customers according to global standards.
These are the critical challenges facing the sector during this phase and controlling its future direction for many years to come. M