This week, Botswana Insurance Holdings Limited (BIHL) went public about the impact that COVID-19 has had on its profitability for the half-year ending 30 June 2020.
The country’s most diversified financial services provider cautioned shareholders that profit before tax (PBT) will be lower than that reported for the six-month period ended 30 June 2020 by between 22 percent and 26 percent.
According to BIHL’s statement, this translates into a reduction of between P72 million and P85 million in PBT. PBT for the six-month period ended 30 June 2020 was P321.8 million.
The board of directors chalked up such a reduction to an increase in claims, rising 44 percent during the six-month period to June 2021. The underlying cause was excess mortality which adversely impacted the life insurance business.
Online researches define excess mortality as a term used in epidemiology and public health to refer to the number of deaths from all causes during a crisis above and beyond what is expected under ‘normal’ conditions.
BIHL’s life insurance business is housed under Botswana Life, the country’s leading long term insurer. Botswana Life is a provider for over 200 000 lives with approximately 300 000 individual policies, and a market share of just under 70 percent.
BIHL says the increase in mortality was driven by the COVID-19 pandemic as the country continues to battle with high infection rates experienced in the third wave which has overwhelmed medical facilities. “In the comparative period, the number of claims were lower than expectation, largely assisted by the lockdowns and lower infection rates,” the group wrote, noting however that it has recorded a strong top-line performance during the period resulting from impressive volumes of new business underwritten.
But as some digested the revelations of rising claims, which were rightfully predicted by BIHL’s CEO Catherine Lesetedi, others could not help but wonder what this means for insurance premiums, the reference point being developments in neighbouring South Africa.
In July, Fin24, South Africa’s premier site for finance news, reported that Discovery Life became the first South African insurer to “consider COVID-19 vaccination in its underwriting processes”. The report quoted the company as saying it is going to “treat a refusal to vaccinate against COVID-19 the same way it treats smoking or lifestyle diseases such as diabetes when it determines premiums”.
“Clients with new policies who indicate that they are unwilling to be vaccinated may, unfortunately, be subject to higher premiums due to the increased risk,” the company said in July. The rules kicked in end of July with Discovery saying it would adjust premiums for those who change their minds.
It is important to note that other insurance companies may not be able to catch up with trend because of the way their businesses are. Discovery already had the kind of framework allowing them to input health information to design product hence they are the first company to price in unvaccination. Other companies may struggle because they will need to build the functionality first and pass it with different departments to understand and approve.
Meanwhile, the rollout of vaccines reaffirmed the unequal nature of the global economic base, with Africa lagging significantly behind other continents. As at 20 August 2021, the number of fully vaccinated people in Botswana was 181,922 in a population of roughly 2.5 million. Those with only the first dose were 252,722. The number of deaths recorded as at 20 August in Botswana stood at 2,171 with total confirmed cases at 150,842.
BIHL said it is actively monitoring the risks brought about by excess mortality and has put measures in place to manage the impact. “However, the trading environment remains volatile, and COVID-19 is expected to continue to pose challenges into the second half of the year,” the board told shareholders.
As at December 2020, BIHL had paid P1.6 billion in benefits and claims despite tough economic conditions. The group also reported a statutory requirement of capital cover with a ratio of 6,3 times, representing very solid capitalisation levels.
BIHL said capitalisation levels continue to be significantly more than regulatory requirements and internally stipulated risk appetite. At the time of this report, The Business Weekly & Review could not reach BIHL, which is currently on a closed period and embargoed on price sensitive information. BIHL, through Botswana Life, is the leader in the market.
The Botswana insurance market is dominated by the life insurance sector. This sector is larger than the non-life insurance sector, accounting for 75 percent and 25 percent of the market respectively, in 2018. In the insurance sector, Botswana has one of the more developed life sectors in sub-Saharan Africa and innovation, especially in the life segment, which is improving accessibility.
Overall, written insurance premiums in Botswana remained relatively steady at P5.4 billion for two consecutive years in 2018 and 2019, falling short of projected growth of 7.7 percent. Short-term growth in Botswana’s insurance sector came to a halt in 2020 due to the COVID-19 pandemic. The life insurance sector contracted for the second consecutive year. Nonetheless, premium growth in the life sector is expected to average 4,8 percent per annum between 2021 and 2024.