To withstand economic shocks and possible recession that could hit countries’ economies following Covid-19 pandemic, insurance firms have resorted to cutting cost as well as adopting risk management measures to remain viable.
This comes on the heels of analysts’ predictions that the pandemic may result in economic recession that may hit hard on the economy of countries, with Nigeria strongly pointed at.
Experts at PwC in its latest report titled ‘Demand and Supply Shocks from Covid-19 to keep Inflation Higher for Longer,’ estimate that headline inflation will average 12.2 percent in 2020 compared to 11.4 percent in 2019.
According to the agency, this is based on expected second wave of the pandemic that could further threaten outlook for global economic growth, coupled with the absence of major shocks to food supply in Nigeria.
Since the advent of the pandemic in Nigeria on February 27, 2020, and subsequent lockdown of the economy to contain it, insurers like many other businesses have been struggling to make sales, as consumers’ income witnessed tremendous decline.
But what has been a major different with other consumables is that insurance in this part of the world is seen as luxury, as most consumers give preference to essential needs before insurance.
This, according to industry operators, is expected to impact on companies’ productivity and profitability in the third and last quarters.
To contain the impact therefore, insurers are adopting strategies to reduce cost of business acquisition as well as management expenses, while adopting proper underwriting to ensure effective risk management.
According to many of them, this will not affect quality of serve of claims payment, but proper underwriting will be key.
Tope Smart, immediate past chairman of the Nigerian Insurers Association (NIA), speaking on the impact of Covid-19 on the industry, states that this will no doubt impact on the operation of member companies.
Smart, who is also the group managing director of NEM Insurance plc, says, “My advice to operators is that this is the time to eliminate unreasonable expenses and conserve resources as much as possible in preparation for economic downturn.”
In addition, the risk management mechanism of each company must be activated in order to withstand the headwinds that may come, Smart notes.
Headline inflation rose by 12.4 percent year-on-year in May 2020 (the highest in 26 months – from 12.3% in April).
The continued rise in headline inflation was partly caused by the supply shocks to the commodity process and the fallout from the Covid-19 pandemic, and these factors had kept the inflation rate above its long-term rate of 11.9 percent, according to PwC.
