Darryl Grater, President of the IIG, welcomed all in attendance to Sasria’s second sponsored Insights Session for 2020. No industry was spared from the Covid-19 pandemic wrath, and the short-term insurance industry is no different. Today we unpack the impact of the pandemic on the economy and the approach and steps required to mitigate its effects on the short-term insurance industry. Our expert panel will also help us reflect on the supportive role the industry should play in facilitating and expediting our Covid-19 recovery.
Darry reminded the audience that all our Insights Sessions are CPD accredited and your CPD hours can be obtained via the IIG CPD Vault on our website. We were also reminded to follow the IIG on all social media pages as well as share our posts with the hashtags #YourIIG and #InsuringTomorrow.
Our dynamic speakers for today are:
Dr. Thabi Leoka
Thabi is an Economist who has worked for various organisations in the financial sector.
She was recently appointed by President Ramaphosa to the Public Investment Corporation Commission of Inquiry. Thabi is a non-executive director of the Small Business Institute and ACT-Afrique which is based in Senegal. She is also on the advisory board of Deloitte SA. Thabi sits on the Statistic South Africa (Stats SA) Council where she chairs the Economic Committee. She was appointed by the Minister of Finance in 2018 to review the zero-rated products in order to support the poor and vulnerable in the country. Thabi was named the Economist of The Year 2017 by ABSIP.
Viviene Pearson – Chief Executive Officer, South African Insurance Association (SAIA)
Viviene has been with the South African Insurance Association for more than a decade. She holds a BA Honours in Political Science and Journalism, former Rand Afrikaans Universiteit now University of Johannesburg. In her career at SAIA she has played various roles including Image and Reputation Manager, Motor Manager, and General Manager for Projects and Insurance Risks. She was appointed as the CEO of SAIA from January 2016, after acting in the position during 2015.
Thabi kicked-off the session by thanking the IIG for the invitation to present. She reiterated that this is an interesting time for the South African economy as well as the global economy. We need to have a balanced view of SA economy and where the opportunities lie. The growth profile of SA for 2020 reflects our GDP to contract by 9.2%. In general, growth has been less than 1% even prior to the pandemic. The Reserve Bank expects higher estimations for 2021 as the economy recovers and manufacturing rebounds. However, this does not necessarily mean that the economic recovery is strong. The challenge with estimates is that if anything has to happen going forward for example, a strike, then the recoveries after the pandemic once again are at risk. There is much debate on what the real numbers actually are. The quality of our data is not always accurate, and SA has one of weakest contractions in the world. SA annual forecast is a lot weaker than other countries. Every sector has contracted except agriculture. Wine and horticulture were impacted but lifted in level 4. Other sectors were harshly affected by lockdown and tourism will take at least three years to recover. The concern over GDP, including from Europe and other first world countries, is seeing a second wave causing disruptions to the global supply chain.
Household expenditure as well as alcohol and beverage has seen a 92% contraction. Hotels and restaurants have had almost 100% contraction and food and non-alcoholic beverages also declined by 27%. Many South Africans are without jobs which has resulted in a huge decline in public investments. Over the years private business investments have also declined. Our focus must be on infrastructure growth and the purchasing managers index (PMI), as there is significant recovering in manufacturing. Agriculture has not been disrupted and the entire value chain is in place with the exception, however of natural disasters such as droughts. SA has a very diverse economy, and the various sectors driving growth are very similar to the UK. The Finance sector is low employing as it requires specialised skills. Low skill sectors such as mining, need growing as it would contribute to the economy and generates high revenue.
In order to demonstrate the value chain, Thabi used the example of a bicycle. It has many components, and each is derived from different countries. The pandemic and lockdown impacted on the entire value chain and the finished goods become uncompetitive in export.
At least 2.2 million South Africans lost jobs in the second quarter and it will take considerable time to absorb that labour force. Germany opted for workers to work on a rotational basis, which not only keeps skills ongoing, but when they are ready to once again employ full time, these skills won’t be lost. How will sectors recover in South Africa? It will probably take about 5yrs to recover. 39 million South Africans are of working age but only 14.1 million are employed. As a result, there is a huge dependency on social grants. We need to deploy programmes to absorb those that can work to be implemented into various businesses. We also need to review how we view education and not compare ourselves to countries like Switzerland, that have higher numbers of people with degrees and apprenticeships. SA has different skills and requirements and not everyone needs degrees. We must also focus on entrepreneurship and how to assist in building young entrepreneurs. As a society, we must change how we view people without degrees and work on ensuring that our basic education is top class. We also need to be more malleable with employment and ensure mass employment in the public sector.
This year, in every budget meeting, it is becoming apparent that we are in trouble fiscally and every change is a huge expense to the taxpayer. Thabi added that she enjoys following various social media platforms as it gives you a chance to get a sense of what real people on the ground are thinking. Thabi then touched on the controversial topic of the “disappearance” of the allocated R500 billion. She added that there wasn’t an actual disappearance, but it was allocated through various sectors:
- R70bn – Tax Relief
- R200bn – Credit Guarantee scheme (only R16bn utilised)
- R40bn – Wage Protection
- R190bn – Direct Budget Funding
For example, banks have about R67 billion that they can extend, but only extended R16 billion to smaller and medium sized entities.
The UIF is unfortunately fraught with corruption and money leakage. Emerging market countries cannot print money like the US. According to the Finance Minister, expenditure cannot be controlled so in order to fund the operations of government, we need to issue bonds. There is an increasing gap between expenditure and revenue. We are not collecting much as growing, unemployment has led to fewer people contributing to the tax revenue. Thabi touched on the hot debate around giving money to South African Airways (SAA). This is not stimulatory at all as globally; aviation will only recover in the next three years. Important to remember is that we cannot overtax the small percentage of people that are employed and it’s not fair for these people to be further burdened with so many South Africans not paying taxes.
Social grants, child support and old age make up a large percentage. However, monetary policies don’t place food on the table, address employment, sanitisation and housing. These policies don’t impact on the poor and therefore, transmission mechanisms need to impact everyone in the country.
It is crucial to have a viable economy recovery plan. Investment comes to areas that are attractive, so it is highly unfortunate that infrastructure has sat on different budgets and there has been no materialisation, example in the housing sector. The infrastructure fund will complement the plan’s focus on capital investments and only bankable projects must be on the books. A possible wildcard idea is that perhaps tender processes should be done via AI and hopefully this could bring accuracy and increase productivity.
Thabi then concluded her session with words of encouragement to think outside the box to promote green shoots and thereby ensuring we are all winners.
Darryl thanked Dr. Leoka for her insightful presentation and welcomed the next speaker.
Viviene Pearson thanked the IIG for the opportunity to present and address the impact of Covid-19 on the non-life industry. Viviene looked at where we are now, and the most pertinent trend is uncertainty. Our industry follows the growth route of economy very closely. The Insurance industry was classified as essential services from the beginning. Various insurances managed to lessen the burden on its policyholders, and this was positively received.
Covid-19 relief insurance contributed towards discounts given on motor insurance as well as there being risk and premium adjustments. Commercial lines adjusted to about R224,4 million in savings to the policyholders with a total relief of about R1,7 billion being provided with contributions to solidarity funds and other causes. The industry also committed to keep their staff employed during this period. There have been extensive issues around BI policies, claims and crises, but insures are providing interim relief whilst seeking legal certainty.
What are we hoping to expect in 2021? The impact has not been hugely intense on the insurance industry although we did see a significant decrease in premium income and adjustments in risk. Going forward, unemployment will mean pressures on disposable income and personal insurance is usually the first to be cancelled. Many SME’s have gone out of business and this too will impact on the insurance industry.
New business has seen a 50% reduction and acquisition is expected to remain flat or negative as the economy contracts. Many businesses have failed, and unemployment numbers increase sharply as expected. There is also a general downward trend in investment income. Certain business classes have seen an increase in claims and an increased cost of working from home. Reinsurance capacity has become an issue, which impacts on insurer capacity and many businesses are also not making new employment appointments. The Prudential Authority is not concerned about solvency risks but are monitoring it quite closely.
Viviene ended her session on a positive note by adding that there are lots of opportunities for our industry through this challenge. We must avoid any reputational risk for the industry by re-looking at wordings to accommodate new ways of working and living as well as be more innovative with product design and development. SAIA is rebuilding its reputation and have begun a public relations exercise to reaffirm the value of insurance.
We need a potential future solution as our fiscus will be under severe pressure for atleast the next five years. Some of the obvious opportunities is a speedy launch of 4IR. Digital differentiation could also potentially change business models and provide a potential new way of working. Innovative new product offerings and distribution models could present opportunities as well as an opportunity for simpler policies and wordings, influencing a growing appreciation for the of value of insurance.
Viviene concluded her session and thanked the IIG for the opportunity.
Our MC thanked the speakers for their time and their insights and knowledge sharing. He then managed a short Q&A session. One of the pertinent questions coming through was that, if the majority of decision makers agreed that SAA should not have been bailed out, why did it still happen?
Thabi replied that mainly it was pressure from the unions. The President of SA was hugely supported by COSATU during his campaign, so it was very difficult to not succumb to their pressure.
Darryl closed the session by thanking Sasria for their sponsorship and sourcing our incredible speakers for the day.
By: Asiya Swaleh