Africa will see pressure from the "Big Six" global reinsurers to increase prices, says Ryan Phillips, COO at Afro-Asian Insurance Services, a Lloyd's Broker which focuses on reinsurance business, mainly emanating from Africa and South East Asia.
The likely result, he says, is that increasing insurance penetration in Africa “will take a back seat for three to four years”.
For the first time in 20 years, global reinsurers are pushing up prices across the board, according to an article in The African Report quoting Mr Phillips. “The flexibility has to come from African reinsurers and insurers,” he said, “Insurance companies are going to have to pass on the cost.”
The six largest reinsurance companies by premiums written in 2019 were Munich Re, Swiss Re, Hannover Re, Scor, Berkshire Hathaway and Lloyd’s.
Persuading African businesses to pay higher rates will be made even harder by refusals to pay out on COVID-19 claims. Refusing business interruption pandemic claims looks like a short-sighted strategy when insurers will need to ask their customers to pay more, Mr Phillips says.
According to S&P, the global reinsurance sector will again fail to earn its cost of capital in 2020. The momentum towards higher reinsurance prices, which was already evident in 2019, is set to continue into 2021, says S&P.
The trend towards higher prices started before COVID-19 and would have continued even without the pandemic, Mr Phillips says. For years, he says, reinsurers have failed to make an underwriting profit, and have relied on investment income.
During the long “soft” reinsurance market, Mr Phillips says, reinsurance rates drifted down by an average of 5% to 10% per year. He hopes that it will now be possible to implement price increases gradually to limit the impact on African buyers of insurance. A gradual approach to price changes, he says, is needed on the way up as on the way down. “There has to be a balance.”
Referring to insurance penetration, Mr Phillips says that while there are innovative insurance policies and apps to distribute them, he sees no sign of them really taking off.
The underlying problem, he argues, is that “no one has been able to come up with an affordable product”.
Neither would digital distribution channels be likely to make much of an impact in the short term. It’s a “step too far”, he argued, to expect rural farmers with access to an app to hand over data and regular cash to an unknown and invisible corporate entity.