Investec Life, the provider of high-end life insurance to Investec’s private banking clients, is already conducting actuarial modelling and scenario planning to assess the impact of another potential pandemic, which some experts believe could strike within the next decade.
Sinenhlanhla Nzama, head product actuary at Investec Life, says insurers have to think of the potential risks they may face in the future and how they will deal with their impact on capital provisions and the quantum of claims they can tolerate should various hypothetical risk scenarios materialise. Given the devastating effect of Covid-19, Investec Life has begun modelling the impact of a range of hypothetical future pandemic scenarios, including the potential for an airborne virus that may strike in either five, 10, 20 or 30 years’ time.
Another potential scenario the insurer has conducted an actuarial modelling analysis on is the prospect of experiencing the simultaneous effect of a global pandemic that occurs in tandem with a failure of its reinsurers.
“You can’t just assume — you have to test various scenarios including the possibility that you get a pandemic that is not only going to have a high impact on one subgroup like we’re seeing with older clients being severely affected by Covid-19,” says Nzama. “If we do have a pandemic driven by an airborne virus that infects everyone equally, those are the types of scenarios we are looking at. It’s the lessons from Covid-19 that need to be incorporated into our new modelling.”
Investec Life’s proactive scenario planning comes at a time when both the short- and long-term insurance sectors are grappling with ongoing claims stemming from multiple waves of Covid-19 infections and subsequent deaths. SA is still reeling from the devastating impact of a third wave of infections that has claimed the lives of well-known business people including former Eskom chair Jabu Mabuza and Toyota SA’s executive chair Johan van Zyl.
In the non-life insurance sector one of the biggest controversies has centred on so-called contingent business interruption (CBI) claims after many businesses in the hospitality industry who believed they had pandemic cover had their claims refused after insurers claimed their policies only covered localised disease outbreaks. After a string of court losses in which insurers were forced to pay out for CBI claims, the question had to be asked whether insurers had accurately quantified the risk of a pandemic occurring as well as the claims it would precipitate.
The notion that insurers had not accurately gauged the risk of a pandemic was essentially proven when two of SA’s biggest insurers, Santam and Momentum Metropolitan Holdings, told the Financial Mail in March that they would no longer be offering pandemic insurance in future. Santam CEO Lizé Lambrechts even went so far as to say pandemics could no longer be considered an insurable event due to their risk.
Nzama emphasises that the majority of SA’s short- and long-term insurers are well capitalised and says anticipated claims from the third wave, as well as the fourth wave that is likely to resurface over the December holiday period, remain comfortably within the capital buffers of most companies in the sector.
“The question is what if these waves keep rolling to six, seventh, eighth, ninth, tenth waves,” says Nzama. “In that scenario there will be a line where you exhaust your capital but that’s unlikely to happen because we’re getting the vaccines, which suppress death rates even when infections rise.”
Interestingly, Nzama says one issue that may arise in the near future is that insurers will probably begin refusing cover to new clients who are not vaccinated, particularly if they have comorbidities such as diabetes or hypertension, which put them at greater risk of Covid-19-related mortality.
Nzama says while existing Investec Life clients will not have their policies cancelled if they refuse to get vaccinated, prospective new clients may be refused cover or potentially charge higher premiums. Discovery Life has also stated it may charge higher premiums should clients refuse to get vaccinated for Covid-19.
“It is a fundamental principle in life insurance that you are underwritten upfront — we won’t re-underwrite you if you’re an existing Investec Life client,” says Nzama. “Only the new clients who are applying for cover or existing clients wanting to increase their cover, then undergoing that underwriting process could become an issue.”
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