Reform business model, life assurance sector urged
THE Insurance and Pensions Commission (IPEC) has urged the life assurance sector to reform its business model to enhance viability and resilience to the ever-changing macroeconomic environment.
As at June 30, 2021, the sector was composed of 12 direct life assurance companies, four (4) composite reinsurance companies and 1 346 agents In its quarterly update report IPEC said sector players also need to find sustainable
solutions to the disruptions brought about by Covid-19.
“The Commission urges the life assurance sector to continuously improve their product offerings for traditional life assurance products and align them to the current business environment for them to remain relevant,” it said.
Sector players should also leverage modern information and communication (ICT) and develop distribution channels that enable them to reach the marginalised sectors of the society.
During the period under review, Gross Premium Written (GPW) by direct life assurance companies amounted to $7,4 billion, representing a nominal increase of 524 percent from $1,18 billion reported in the comparative period in 2020.
In inflation-adjusted terms, GPW experienced a growth of 202,27 percent to $3,57 billion indicating a strong growth in premiums above the 106,6 percent year-on-year inflation.
“Growth in nominal GPW for the half-year ended 30 June 2021, was mainly driven by increases in funeral assurance and Group Life Assurance business.
“Funeral and Group Life assurance business grew by 909,83 percent and 482,32 percent contributing premiums to the tune of $4,49 billion at 60,68 percent and $802 million at 10,84 percent respectively, to the total business by the life assurers,” IPEC said.
As at the June 2021 period, all the eleven (11) life assurance companies who submitted their returns reported capital positions that complied with the prescribed minimum capital requirements of $75 million.
The Commission has urged the players to always maintain capital levels that are compliant with the required minimum capital requirements for the comfort of the insuring public and the insurers themselves in times of bad claims experience.
According to the IPEC report, direct life assurers had an asset base of $$55,1 billion, reflecting a 14 percent nominal growth as compared to $48,2 billion that was reported as at 31 March 2021.
IPEC said the growth in the asset base for the sector was mainly driven by large increases in the values of equity and property investments in response to exchange rate movements and inflation developments.
The average prescribed assets ratio for life assurers stood at 0.326 percent and none of the Life Assurers was compliant with the minimum prescribed asset ratio of 15 percent.
“Players in the Life Assurance sector continue to struggle to comply with the required prescribed asset ratio, as growth in other assets continues to outstrip the growth in prescribed assets,” reads part of the report.
However, the Commission noted that it is closely monitoring the implementation of the compliance plans of sector players to ensure compliance with prescribed asset requirements and the Commission now awaits the submission of prospective prescribed asset projects for consideration.
“In view of these developments, the Commission is set to escalate the enforcement of provisions of SI 206 of 2019 to cause compliance given the olive branch extended to the industry,” said IPEC.
According to the report, the life assurance sector’s GPW was skewed towards recurring business, which accounted for 97 percent of total business written, while new business accounted for the remaining three percent.
“New business remains low, pointing to the need for confidence restoration in the life assurance sector to encourage the uptake of life assurance policies,” read part of the report.
To this end, the Commission encourages players to revamp their product specifications and business models in line with the demand for insurance products.
In terms of business composition by product line, 78,98 percent of the total Gross Premium Written, was generated from funeral assurance business, followed by Group Life Assurance business (GLA) with 15,33 percent.
“The two products continue to be the major sources of business for life assurance companies, eclipsing most of the traditional life assurance products, like endowment and whole life assurance policies,” IPEC noted.
It added that this also reflects the low appetite for traditional life assurance products, although the macroeconomic environment has shown signs of improvement, the business operating environment still faces challenges.
“This calls for dedicated efforts by sector players to embrace research and development and come up with relevant products and new delivery channels for the sector,” it said.
In nominal terms, total profit after tax for life assurers decreased from $34,12 billion for the six months ended 30 June 2020 to $12.32 billion for the six months ended 30 June 2021.-The Chronicle
