Botswana Insurance Holdings Limited (BIHL) says enhancing its risk management will result in the insurer reviewing pricing of products to reflect the current mortality spurred on by the scourge of COVID-19.
Chief Executive Officer (CEO), Catherine Lesetedi, says this is an important undertaking to ensure that the business remains financially strong and prices products “appropriately for the risks that we are taking on”.
Lesetedi was presenting the group’s first-half results in slides, showing P354 million worth of claims between January and June which the business footed. The rise in claims was influenced by COVID-19.
She said BIHL pricing principles did not look at an epidemic happening; its processes, pricing and modelling was not taking into account a pandemic like COVID. Responding to questions from this publication, the CEO said the new pricing will take different approaches to different products. “For some products, we have the views that the margins are healthy enough to continue to carry the risks of COVID and some products mean that we have to review and reprice,” she said, noting that by “repricing” she means prices going up.
Even so, she was non-committal on the scale, given that each scheme is different and each time presents a different risk. But she explained that some of the principles might also have to do with the time of application and what type of tests an individual may go through.
From an industry perspective, the development is not uncommon and the revelation was somewhat expected, given the challenges presented by the pandemic. Certain steps needed to be taken for pricing to reflect the risk, she noted. In South Africa particularly, the industry has been hardening premiums. “The reason is that it is important to ensure that we are still able to run a business that’s sustainable,” Lesetedi emphasised. “We are able to also pay claims.”
Unfortunately with COVID, it is still unknown how long it is going to take for the virus to be well understood, to say nothing of overcome, from a medical perspective. Yet insurance companies ought to appreciate the additional risk that COVID brings. “The repricing is going to be an ongoing review. I’m sure that that will also reflect in our pricing,” Lesetedi said, buttressing the point that it is not just BIHL. Industry in South Africa has actually reacted already, and “we are contemplating some of the actions (and) have talked about things”.
Asked by Bifm’s Investment Analyst, Oshiro Sebogiso, what regulatory and legal considerations to take note of were, Lesetedi answered that she did not expect the regulators to regulate pricing. Infact, she said, this has never been done regardless of whether or not there was a pandemic. This was the case at the time of HIV. “It’s really about reflecting on the risk and deeply understanding how the risk plays out,” she noted.
The CEO was also asked a follow-up question by the same expert who sought to establish whether COVID-19 vaccine status would play a role in underwriting processes. Lesetedi responded: “When it comes to vaccines, there are couple of thoughts and approaches, even in South Africa.” For BIHL, she added, “we really haven’t gotten into a situation where the majority of the population has been vaccinated”.
At this point, she was therefore unable say what the underwriting protocol would be if Botswana got to 80 percent of the population vaccinated. But she drew Sebogiso’s attention to a related scenario in South Africa. Discovery, she said, will give clients a discount if they are vaccinated, which means that the pricing is more favourable for vaccinated clients and will reflect the risk of non-vaccination. “So there are those kinds of thoughts. At some point, maybe we’ll get there, depending on the success of the rollout. So I really can’t say definitively what we’re going to do. But definitely there are some thoughts internally about certain things, which I think are premature to even discuss in this forum,” she said.
BIHL has also assessed operating margins from a unit cost perspective as a measure of BIHL’s efficiency as a business. The CEO explained that unit costs will look at the kind of products where the margins are perhaps lower. Therefore, “we do have a cost optimisation project where we’re looking at how to best improve our processes and how we do business so that we can extract value and have better margins,” Lesetedi said.
Against this background, the cost optimisation project is looking at top platforms to really run an efficient business. BIHL previously created awareness and sensitised investors that some of these actions would take time and they would be preceded by investments. When preceded by investments, Lesetedi said, this meant that unit costs would rise. However, with time and efficiencies being obtained, that should come down.
BIHL continued to see pressure on a traditional face-to-face engagement with its clients. The business rolled out a number of digital channels where some business actually came through some of those digital channels. “We appreciate that not all of our clients actually have access to the Internet,” she noted. “So we’re looking at some very affordable ways of engaging, such as USSD so that we continue on the path of digitising our business.”
While driving sales is the goal, the CEO emphasised the point of household incomes being under pressure. “We’ve actually seen families lose breadwinners,” she pointed out. “So there’s more pressure on individuals who are actually now taking care of maybe not just their families, but having the burden of taking care of an extended part of their families,” she said. “And this again will actually put pressure on some of our products.”